Source: Zhitong Finance APP

With traders nearing the end of a dizzying March, global financial markets are poised for another week of volatility. This month, concerns about US and European banks dominated market sentiment and complicated central banks' efforts to fight inflation.

The Japanese yen and the Swiss franc edged higher against the dollar as the new trading week began in early trading in Sydney. Traders focused on safe-haven assets after Russian President Vladimir Putin commented on the deployment of tactical nuclear weapons in Belarus on Saturday. The euro was virtually flat after European Central Bank Vice President Jean-Claude Guindos said uncertainty in the banking sector meant the ECB would decide interest rate policy on a case-by-case basis.

Demand for safe-haven assets has increased, particularly the yen, which has risen over the past four weeks, as concerns about the health of a series of banks and a possible recession in the US hit the market hard. Friday, with$Deutsche Bank (DB.US)$Become the latest bank to be vetted by investors, and U.S. Treasury Secretary Yellen convened a meeting of the Financial Stability Supervisory Board, volatility once again swept through global markets.

According to people familiar with the matter, the US authorities are considering whether and how to$First Republic Bank (FRC.US)$Provide support to give it more time to shore up its balance sheet. In addition, in$SVB Financial (SIVB.US)$After closing down earlier this month,$Valley National Bancorp (VLY.US)$And$First Citizens BancShares (FCNCA.US)$Are said to be vying for the bank. In Switzerland, the Swiss banking regulator said$Credit Suisse (CS.US)$May face the threat of an investigation.

Despite the pressure on some banks, the overall financial system is healthy, the top US regulator said on Friday.

The woes of the banking sector have prompted bond traders to dramatically change their expectations of monetary policy. They abandoned bets that the Fed would raise interest rates again in May and increased officials' bets that they would cut rates as early as June. Traders also cut their expectations for higher interest rates for the European Central Bank and the Bank of England.

"when the central bank tightens too much, the situation collapses," said Jack McIntyre, a portfolio manager at Brandywine Global Investment Management. "but you can't be too negative, because all these things can change quickly. There are two-way risks. "

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Meanwhile, a report this week may show that a key measure of US inflation remains high, reminding investors and the Fed that they must walk a tightrope to maintain price and financial stability.

Amid this vague policy outlook, measures of volatility in short-term Treasuries are close to their highest level since 2008. The yield on the two-year note hit 3.55 per cent on Friday, its lowest level since September, as traders sold off their bets to raise interest rates. In early March, the rate has fallen by more than 100 basis points since it exceeded 5 per cent for the first time since 2007.

The yen has risen about 4 per cent this month, outpacing other major currencies as markets are volatile and the collapse in bond yields weakens the interest rate advantage of other economies over japan. Commodity-related currencies, including the Australian and New Zealand dollars, have performed poorly.

Ed Al Hussaini, interest rate strategist at Columbia Threadneedle Investments, said he expected bonds to rebound as the Fed's tightening policy slowed the economy, but the volatility and pace of Fed tightening highlighted the fragility of the market.

"We thought it would happen in the next nine months, but it happened in nine days," he said. "I don't want to complain, but I'm afraid it's happening too soon."

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