Asian equities recover some losses after Credit Suisse takeover

Asian equities pushed higher on Tuesday morning and bank bonds recovered as investors assessed the risk of contagion in the financial system after the takeover of Credit Suisse.

Hong Kong’s Hang Seng index added 0.6 per cent and China’s CSI 300 gained 0.3 per cent. South Korea’s Kospi and Australia’s S&P/ASX 200 added 0.6 per cent and 1.2 per cent, respectively. Japanese markets were closed for the vernal equinox holiday.

Banking stocks also gained, with the Hang Seng Finance index adding 0.8 per cent. HSBC and Standard Chartered gained 2.6 per cent and 2.2 per cent, respectively.

Banking stocks had led Asian equities lower on Monday after a Swiss government-brokered $3.25bn deal for UBS to purchase rival Credit Suisse rattled confidence in the banking sector.

As part of the deal, $17bn worth of Credit Suisse additional tier 1 (AT1) bonds, a type of higher-risk bank debt designed to take losses during a crisis, was wiped out, said Swiss financial regulator Finma at the weekend.

That triggered a sell-off in AT1 bonds at other financial institutions, as investors worried bondholders would have to take on bigger losses than shareholders of Credit Suisse, who were allocated UBS stock.

But Asian banks’ AT1 bonds appeared to recover on Tuesday. A 5.825 per cent Bank of East Asia perpetual dollar bond rose 2.865 cents to 83.068 cents on the dollar, while a 4 per cent bond from Thailand’s Kasikornbank jumped 2.24 cents to 82.53.

On Monday, European equities pushed higher from mid-morning, while US stocks opened in the green. The S&P 500 closed 0.9 per cent higher, while the Nasdaq Composite gained 0.4 per cent, led by a 0.8 per cent bump in the KBW Nasdaq Bank index.

Markets on Tuesday looked ahead to the beginning of a two-day meeting of policymakers at the US Federal Reserve. The turmoil in the global banking sector, which began with the collapse of Silicon Valley Bank, has eased expectations of interest rate increases.

Futures funds now place US interest rates to peak at around 4.86 per cent in May before a quarter-point decrease in June and successive cuts to below 4 per cent at the end of the year.

The yield on the two-year Treasury note, which closely follows interest rate expectations, jumped 0.05 percentage points to 3.98 per cent on Tuesday while the yield on the 10-year note rose 0.02 percentage points to just under 3.50 per cent. Yields move inversely to price.

Oil markets fell on Tuesday, with US benchmark West Texas Intermediate slipping 0.5 per cent to $67.29 per barrel and international marker Brent crude down by the same margin at $73.45.

Spot gold prices added 0.1 per cent to trade at $1,981.84 per troy ounce after briefly touching their highest level since March 2022 on Monday.