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US and European equity futures dropped yesterday, Treasury yields declined and the dollar fluctuated as efforts to safeguard the global banking system failed to soothe market jitters.

Positive early readings on UBS Group’s agreement to buy Credit Suisse Group AG and central bank moves to boost dollar liquidity gave way to a more cautious sentiment as the trading day progressed.

Financial stocks slid during Asian trading, led by HSBC Holdings, whose shares dropped more than 7 percent in Hong Kong on concern over risky bond exposures related to Credit Suisse. The additional tier-1 bonds issued by some banks in the region fell by a record after a Swiss regulator earlier said US$17 billion of such AT1s from Credit Suisse would be wiped out.

Equities benchmarks for Hong Kong, Japan and Australia extended declines, pushing an Asian stock gauge down 1,4 percent. Contracts for the S&P 500 swung from a gain of 0,8 percent to losses of around 1 percent.

A measure of dollar strength swung between small gains and losses. The Swiss franc and the euro fluctuated.

The policy-sensitive two-year Treasury yield fell nearly 20 basis points Monday, adding to a slump of more than 30 basis points on Friday. 

It had rebounded 18 basis points earlier in the volatile Asian session.

That’s as traders try to assess the Federal Reserve’s next move amid the heightened financial instability and a softer-than-expected reading on inflation expectations on Friday.

Much of the debate in markets is now focused on whether the Fed will deliver another quarter-point hike or pause at its today and tomorrow’s meeting. Traders no longer see much chance of a bigger half-point hike that Chair Jerome Powell had put on the table just before concerns about financial stability emerged.

“Our best guess is that the Fed would still like to hike by 25 basis points and try to make it clear to the market that rate hikes are still focused on getting inflation back under control,” Brad Gibson, head of Asia Pacific fixed income at AllianceBernstein, said on Bloomberg Television.

Policymakers are rushing to shore up confidence after the collapse of Silicon Valley Bank and problems at Credit Suisse added to broader concerns over financial stability.

UBS’s government-backed takeover of Credit Suisse seeks to address client outflows and a massive rout in the target’s stock and bonds.

The Fed and five other central banks announced coordinated action to boost liquidity in US dollar swap arrangements to ease strains in the global financial system.

“It’ll take some time to digest the Credit Suisse news,” said Chamath De Silva, senior portfolio manager for BetaShares Holdings. “The broader equity market remains relatively stable, pinned by the competing forces of banking crisis-induced credit contraction and the potential stimulative effects of easier policy.”

Yield on the policy-sensitive three-year Australian bond slipped about 17 basis points to 2,84 percent, taking it further below the Reserve Bank’s 3,6 percent cash rate.

Elsewhere in markets, Bitcoin fell slightly from its highest level since June. Oil dropped and gold fluctuated. – Bloomberg