The Japanese yen strengthened on Monday as investors reacted with less confidence to UBS's price-cutting takeover of beleaguered rival Credit Suisse.
Under the deal, holders of $17 billion of Credit Suisse's Additional Tier-1 (AT1) bonds will be wiped out. This created consternation among debt holders, who thought they would be better protected than shareholders, and investors.
The safe-haven yen for investors and traders strengthened as overnight falls in Asian bank stocks spilled over into Europe on Monday.
The US dollar fell to its lowest level since February 10 at 130.55 yen and was last down 0.66% at 130.96.
"The immediate concern now is that AT1 bonds have been fully downgraded, which is against convention because equity holders are supposed to be riskier than bond holders," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets. This is confusing to many people.
An index of European banking shares fell nearly 6% in early trade but was last down 1.65% as markets appeared to calm down.
The euro strengthened 0.49% against the dollar at $1.0718, while the British pound strengthened 0.54% at $1.224.
As part of regulators' efforts to boost confidence in the global banking system, central banks took action on Sunday to boost cash flows around the world.
U.S. Federal Reserve offers daily currency exchanges to ensure banks in Canada, Britain, Japan, Switzerland and the eurozone have the dollars they need to operate.
Analysts say the sharp drop in US bond yields is making the dollar less attractive and reducing its appeal as a safe-haven asset. The US dollar index, which measures the currency against six major currencies, was down 0.31% at 103.53, following last week's 0.73% fall.
Yield on U.S. Treasury notes. The 10-year fell 3 basis points to 3.365% on Monday as investors turned to government bonds, seen as safe-haven assets, and bet the Federal Reserve will now struggle to raise interest rates further.
Interest rates are currently at 4.5% to 4.75%. Investors see a 60% chance of no change and a 40% chance of a 25 basis point increase.
Elsewhere, cryptocurrency Bitcoin continued to rocket to a nine-month high of $28,323, last trading 0.87% higher at $28,291.
