A renewed bout of volatility rattled markets around the world as SVB Financial Group’s turmoil spurred concern about the next shoe to drop at a time when the Federal Reserve is deploying its most-aggressive tightening campaign in a generation.

Not even remarks from prominent voices that a systemic financial crisis is unlikely was able to appease investors. Equities sold off, with the S&P 500 coming close to wiping out its 2023 gains. Traders rushed in droves to the safety of bonds, which also soared after jobs figures offered a glimmer of hope that the Fed may refrain from accelerating its pace of rate hikes.

As risk assets got pummeled, the U.S. stock benchmark suffered its worst week since September. Wall Street’s so-called “fear gauge” spiked, with the Cboe Volatility Index hitting 29 at one point. Bitcoin broke below US$20,000. Treasury two-year yields plummeted 29 basis points to 4.58 per cent. 

The trigger for further de-risking was the official news that Silicon Valley Bank became the biggest U.S. financial failure in more than a decade, after its long-established customer base of tech startups grew worried and yanked deposits. It’s the second regional lender to fold this week after Silvergate Capital Corp. announced it was voluntarily liquidating its bank.

Read: What SVB’s Failure Means for the Bank and Its Clients: QuickTake

Anxiety is also running high ahead of next week’s consumer price index report, especially after Fed Chair Jerome Powell recently emphasized that a move to a faster pace of tightening would be based on the “totality of the data.”

“We are just beginning to feel the effects of quantitative tightening on markets and the economy,” said Peter van Dooijeweert at Man Solutions. “As such, the market seems to be reverting to a 25 basis-point hike next meeting after almost being certain of 50 basis points only a few days ago. The worst-case scenario ahead would be a high CPI next week forcing the Fed’s hand despite hints of financial stability issues.”

Swap traders now see a 25-basis point hike at the March policy meeting as more likely than half-point move. They also lowered expectations for how high the Fed will push the borrowing costs — once again fully pricing in a rate cut from the peak level by year-end. 

The rate hikes of the past year were not a prelude to a steady Goldilocks economy that’s running neither too hot nor too cold, but instead to a “hard landing and credit events,” strategists led by Michael Hartnett wrote in a note on fund flows pointing to another risk-off week in markets.

Investors pulled US$500 million from equity funds and piled US$18.1 billion into cash and US$8.2 billion into bonds, according to BofA citing EPFR Global data for the period through March 8.

Treasury Secretary Janet Yellen said the U.S. banking system “remains resilient” and regulators “have effective tools” to address developments around Silicon Valley Bank. Former Treasury Secretary Lawrence Summers said the meltdown of SVB shouldn’t pose a threat to the financial system as long as depositors are made whole.

“Contagion risk and the systemic threat can be easily contained by careful balance sheet management and avoiding more policy mistakes,” Mohamed El-Erian, the chairman of Gramercy Funds and a Bloomberg Opinion columnist, said in a tweet on Friday.

Some of the main moves in markets:

Stocks

• The S&P 500 fell 1.4 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 1.4 per cent
• The Dow Jones Industrial Average fell 1.1 per cent
• The MSCI World index fell 1.4 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.4 per cent
• The euro rose 0.5 per cent to US$1.0639
• The British pound rose 0.8 per cent to US$1.2026
• The Japanese yen rose 1 per cent to 134.83 per dollar

Cryptocurrencies

• Bitcoin fell 1.2 per cent to US$19,974.68
• Ether fell 1 per cent to US$1,418.3

Bonds

• The yield on 10-year Treasuries declined 22 basis points to 3.68 per cent
• Germany’s 10-year yield declined 13 basis points to 2.51 per cent
• Britain’s 10-year yield declined 16 basis points to 3.64 per cent

Commodities

• West Texas Intermediate crude rose 1.1 per cent to US$76.56 a barrel
• Gold futures rose 2.1 per cent to US$1,873.60 an ounce