The government is “working to recognise the anxiety” of businesses caught up in the collapse of the the UK arm of Silicon Valley Bank, the prime minister has said.
Speaking to reporters during an official trip to the US, Rishi Sunak said the government has been “working through over the weekend” to respond to the failure, but did not believe there was a “systemic contagion risk”.
He also echoed comments by Chancellor Jeremy Hunt that the Treasury was “working at pace” to find a solution that ensured customers’ cash-flow.
While Silicon Valley Bank (SVB) has a limited presence in the UK and does not perform functions critical to the financial system, it has been warned its collapse could have a significant impact on tech start-ups.
Mr Sunak said: “We have been working through over the weekend.
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“We don’t believe there is a systemic contagion risk.
“We’re working to recognise the anxiety and the concerns customers of the bank have and making sure we can work to find a solution that secures people’s operational liquidity and cash-flow needs. And that’s what the Treasury is working on.”
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Pressed over steps being taken ahead of the markets opening on Monday morning, Mr Sunak replied: “The Treasury is working at pace.”
Image: The insolvency announcement came after SVB was put under US government control
Dismissing talk of the UK setting up an emergency fund to guarantee deposits as “speculation”, he added: “Lots of different things they are looking at.
“Just rest assured they’re working through it over the weekend and are making sure there is a solution that provides operational liquidity for people’s cash flow needs”
Earlier, the chancellor said British tech firms faced a “serious risk” over the collapse of the bank.
Mr Hunt told Sky News’ Sophy Ridge On Sunday programme: “The Bank of England has made it very clear there is no systemic risk to our financial system, so people should be reassured on that basis.
“But there is a serious risk to our technology and life sciences sectors.
“It happens to look after the money of some of our most promising and exciting businesses.
“We are working at pace on a solution we will bring forward very soon plans to make sure people are able to meet their cashflow requirements, pay their staff.
“But obviously what we want to do is to find a longer term solution that minimises or even avoids completely losses to some of our most promising companies.”
Labour’s shadow chancellor Rachel Reeves told Ridge: “I would urge the government to do more than offer warm words, but come forward with specific plans.”
Tory former chancellor Lord Hammond said: “This is a very important dynamic sector and we don’t want to see it suffer a massive own goal here.”
Meanwhile, US treasury secretary Janet Yellen said she was working closely with banking regulators to respond to the collapse and protect depositors, but a major bailout was not being considered.
She told CBS News: “Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out…and the reforms that have been put in place means we are not going to do that again.
“But we are concerned about depositors and are focused on trying to meet their needs.”
Dom Hallas of the Coalition for a Digital Economy (COADEC) said: “It is clear this could have a significant impact on the UK’s tech start-up ecosystem.”
SVBUK said it will be put into insolvency from Sunday evening.
It is a subsidiary of Silicon Valley Bank (SVB) and was the first location it opened outside the US.
The insolvency announcement came after SVB was put under US government control on Friday afternoon in the biggest failure of a US bank since the 2008 financial crisis.
The BoE said the company will stop making payments and accepting deposits.
The move will allow depositors to be paid up to £85,000 from the deposit insurance scheme.
This is the term used periodically to describe investors who push back against what are perceived to be irresponsible fiscal or monetary policies by selling government bonds, in the process pushing up yields, or implied borrowing costs.
Most of the focus on markets in the wake of Donald Trump’s imposition of tariffs on the rest of the world has, in the last week, been about the calamitous stock market reaction.
This was previously something that was assumed to have been taken seriously by Mr Trump.
During his first term in the White House, the president took the strength of US equities – in particular the S&P 500 – as being a barometer of the success, or otherwise, of his administration.
Image: Donald Trump in the Oval Office today. Pic: Reuters
He had, over the last week, brushed off the sour equity market reaction to his tariffs as being akin to “medicine” that had to be taken to rectify what he perceived as harmful trade imbalances around the world.
But, as ever, it is the bond markets that have forced Mr Trump to blink – and, make no mistake, blink is what he has done.
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To begin with, following the imposition of his tariffs – which were justified by some cockamamie mathematics and a spurious equation complete with Greek characters – bond prices rose as equities sold off.
That was not unusual: big sell-offs in equities, such as those seen in 1987 and in 2008, tend to be accompanied by rallies in bonds.
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17:12
What it’s like on the New York stock exchange floor
However, this week has seen something altogether different, with equities continuing to crater and US government bonds following suit.
At the beginning of the week yields on 10-year US Treasury bonds, traditionally seen as the safest of safe haven investments, were at 4.00%.
By early yesterday, they had risen to 4.51%, a huge jump by the standards of most investors. This is important.
The 10-year yield helps determine the interest rate on a whole clutch of financial products important to ordinary Americans, including mortgages, car loans and credit card borrowing.
By pushing up the yield on such a security, the bond investors were doing their stuff. It is not over-egging things to say that this was something akin to what Liz Truss and Kwasi Kwarteng experienced when the latter unveiled his mini-budget in October 2022.
And, as with the aftermath to that event, the violent reaction in bonds was caused by forced selling.
Now part of the selling appears to have been down to investors concluding, probably rightly, that Mr Trump’s tariffs would inject a big dose of inflation into the US economy – and inflation is the enemy of all bond investors.
Part of it appears to be due to the fact the US Treasury had on Tuesday suffered the weakest demand in nearly 18 months for $58bn worth of three-year bonds that it was trying to sell.
But in this particular case, the selling appears to have been primarily due to investors, chiefly hedge funds, unwinding what are known as ‘basis trades’ – in simple terms a strategy used to profit from the difference between a bond priced at, say, $100 and a futures contract for that same bond priced at, say, $105.
In ordinary circumstances, a hedge fund might buy the bond at $100 and sell the futures contract at $105 and make a profit when the two prices converge, in what is normally a relatively risk-free trade.
So risk-free, in fact, that hedge funds will ‘leverage’ – or borrow heavily – themselves to maximise potential returns.
The sudden and violent fall in US Treasuries this week reflected the fact that hedge funds were having to close those trades by selling Treasuries.
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Trump freezes tariffs at 10% – except China
Confronted by a potential hike in borrowing costs for millions of American homeowners, consumers and businesses, the White House has decided to rein back its tariffs, rightly so.
It was immediately rewarded by a spectacular rally in equity markets – the Nasdaq enjoyed its second-best-ever day, and its best since 2001, while the S&P 500 enjoyed its third-best session since World War Two – and by a rally in US Treasuries.
The influential Wall Street investment bank Goldman Sachs immediately trimmed its forecast of the probability of a US recession this year from 65% to 45%.
Of course, Mr Trump will not admit he has blinked, claiming last night some investors had got “a little bit yippy, a little bit afraid”.
And it is perfectly possible that markets face more volatile days ahead: the spectre of Mr Trump’s tariffs being reinstated 90 days from now still looms and a full-blown trade war between the US and China is now raging.
But Mr Trump has blinked. The bond vigilantes have brought him to heel. This president, who by his aggressive use of emergency executive powers had appeared to be more powerful than any of his predecessors, will never seem quite so powerful again.
Rupert Murdoch’s News Corporation is in advanced talks to take a stake in a London-listed marketing specialist backed by Lord Ashcroft, the former Conservative Party treasurer.
Sky News has learnt that the media tycoon’s British subsidiary, News UK, is close to agreeing a deal to combine its influencer marketing division – which is called The Fifth – with Brave Bison, an acquisitive group run by brothers Oli and Theo Green.
Sources said the deal could be announced as early as Thursday morning.
News UK publishes The Sun and The Times, among other media assets.
If completed, the transaction would involve Brave Bison acquiring The Fifth with a combination of cash and shares that would result in News UK becoming one of its largest shareholders.
The purchase price is said to be in the region of £8m.
The Fifth has worked with the television host and model Maya Jama on a campaign for the energy drink Lucozade, and Amelia Dimoldenberg, the YouTube star.
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Its other clients include Samsung and Tommee Tippee.
The deal will be the third struck by Brave Bison this year, with the previous transactions including the purchase of Engage Digital, a key digital partner to sporting properties including the Men’s T20 Cricket World Cup.
The Green brothers took over the Brave Bison in 2020, and have overseen a sharp strategic realignment and improvement in its performance.
In 2023, it bought the podcaster and entrepreneur Steven Bartlett’s social media and influencer agency, SocialChain.
In total, the company has struck six takeover deals since the Greens assumed control.
At Wednesday’s stock market close, Brave Bison had a market capitalisation of about £31m.
Is there method to the madness? Donald Trump and his acolytes would have you believe so.
The US president is standing firm among all the market chaos.
Just this weekend, after US stock markets suffered their sharpest falls since the onset of the pandemic, Trump reposted a video on his social media platform Truth Social. This was its title: “Trump is purposefully CRASHING the market.”
The video claimed the president was engineering a flight to US government bonds, also known as treasuries – a safe haven in turbulent times. The video suggested Trump was deliberately throwing the stock market into chaos so investors would take their money out and buy bonds instead.
Why? Because demand for treasuries pushes up the price of the bonds, and that, in turn, lowers the yield on those bonds.
The yield is the interest rate on the debt, so a lower yield pushes down government borrowing costs. That would provide some relief for a government that has $9.2trn of government debt to refinance this year. Consumers also stand to benefit as the US Federal Reserve, the US central bank, would likely follow suit, feeling the pressure to cut interest rates.
Image: A trader works on the floor at the New York Stock Exchange. Pic: Reuters
Trump and his treasury secretary, Scott Bessent, have made it a key policy priority to lower yields. For a while, it looked like the plan was working. As stock markets tumbled in response to Trump’s tariffs agenda, investors ploughed their money into bonds instead.
However, Trump may have spoken too soon. On Monday, the markets had a change of heart and rapidly started selling government bonds. Thirty-year treasury yields hit 4.92% on Wednesday, their biggest three-day jump since 1982. That means government borrowing costs are rising – and not just in the US. The sell-off has spiralled to government bonds worldwide.
Rachel Reeves will be watching anxiously. Yields on Britain’s 30-year government bonds, also known as gilts, hit their highest level since May 1998. They registered a 27 basis point jump to 5.642% today – that’s on track to be the largest one-day move since the aftermath of former prime minister Liz Truss’ “mini-budget” in October 2022.
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0:49
‘These countries are dying to make a deal’
This is a big deal. It is the sharpest sell-off in the US bond market since the pandemic. Back then, investors also rushed into bonds before dumping them and the motivations, on one level, are similar.
In 2020, investors sold bonds because they had to cover losses elsewhere in their portfolios. When markets fall, as they have done over the past few days, lenders can demand that an investor who has borrowed money stump up more cash against the value of their loan because the collateral against those loans has fallen in value. This is known as a “margin call”. Government bonds are easy to sell as investors “dash for cash”.
There are signs that this may be happening again and central banks, which had to step in last time, are alert.
The Bank of England warned today of the growing risks to financial stability. “A sharp increase in government bond yields could crystallise relatively quickly,” it said.
There are other forces weighing on government bonds. With policy uncertainty unfolding in the US, investors could also be signalling that US debt isn’t the safe haven it once was. That loss of confidence also seems to have hurt the dollar, one of the world’s safest places to park your money. It’s had a turbulent journey but is down 1.15% against a basket of safe haven currencies since Trump announced widespread tariffs on 2 April.
Some are even wondering if China could be behind some of this, dumping US government debt as a revenge tactic to hurt a president who has explicitly said he wants bond yields to come down. The country holds $761bn of US government bonds, second only to Japan. If this is the case, then the US-China trade war could rapidly be evolving into a financial war.