Huge moves and volatility on the markets today.

While the share market falls are grabbing most of the headlines, it's actually the bond market where the really dramatic action is taking place.

Rabobank's Michael Every with his take:

"Total panic, with 2-year US bond yields falling the most in one day since Volcker, eclipsing declines seen post-2008, 9/11, and 1987.

"That's what we got yesterday despite President Biden saying the banking system was fine, the Fed saying the same, the FDIC [Federal Deposit Insurance Corporation] backstopping depositors, and every bank analyst saying there is no systemic risk.

"Regardless, small banks were hammered not just in the US but globally, large banks given a kicking to boot, and everyone bought bonds."

When investors rush to buy bonds it pushes their prices up and the yield (or interest rates) on them down — coincidentally the first question Ross Gittins asked me in a job interview many, many years ago.

With Australia's market heavily weighted to banks, especially the big four banks, it's no surprise that the local indices have been off more than 2 per cent at points today (the ASX 200 is currently down 1.6 per cent).

IG's Tony Sycamore says the collapse of Silicon Valley Bank and associated fallout to other regional banks "provides yet another example that the Fed will tighten until something breaks."

"The ASX financial sector accounts for about 28.8% of the ASX200. The big four, CBA, NAB, Westpac, ANZ, and Macquarie Bank, account for a 23.5% weighting in the ASX200 alone.

"Until the dust settles in the U.S, investors will continue to ask questions of all banks."

The other thing investors are questioning is whether this now means a pause, or even the end, of the interest rate rise cycle.

More from Tony Sycamore:

"A potential banking crisis threat trumps high inflation any day of the week.

"Reflecting the repricing of the Fed's priorities, 2-year yields in the U.S. are trading at 4% from 5.08% last week.

"After being 70% priced for a 50bp [basis points] rate hike last week, there is now just 12bps priced for the upcoming FOMC meeting.

"In Australia, the interest rate market is almost fully priced for a 25bp RBA rate cut by July."

Michael Every doubts that financial markets will get what they wish for.

"The financial economy that produces 'assets' is not the real economy that produces goods and services.

"The first is in trouble because of rising rates and a lack of hedging. The second is not doing as well as some might say either: but is seeing high inflation.

"If rates are not to address this then, as a political realist, there is nothing to stop inflation other than saying 'what goes up must come down'. And, of course, assets can then only go up.

"Maybe central banks will pivot [to cutting rates]. If so, don't expect me, or markets, to take anything they say seriously again. More likely, there is a mismatch between the financial-economy's screaming and what central banks think the *real* economy requires."