If you’ve been following along, you’ve noticed a paradox in markets: Two months on from the most acute banking sector turmoil since Lehman, stocks are higher at the index level and volatility is low.

Like all things, this is easy enough to explain in hindsight, but our “uneasy, untenable calm,” as I dubbed it this week, is nevertheless a bit vexing, particularly given everything else that’s wrong in the world.

Although plenty of analysts, strategists and market observers have walked through the dynamics that served to underpin equities and suppress volatility over the past several weeks, scarcely anyone managed to capture the essence of the paradox better than SocGen’s Jitesh Kumar and Vincent Cassot did Thursday, when they came right out and said it: “Yes, equity volatility has moved lower… because of regional bank failures.”

The transmission channel from bank failures to lower volatility goes through Fed expectations, rates and, ultimately, bond proxies in the equity market, which command a giant share of cap-weighted benchmarks.

“Regulators swiftly stepped in to guarantee deposits and stem the damage from the bank failures [so] the losses have been largely contained within the financial sector, which was already much smaller than pre-Lehman crisis levels [but] this hasn’t satisfied bond investors,” Kumar and Cassot wrote, flagging the drop in yields and the dramatic repricing lower of terminal rate expectations.

“The indirect impact of bond yields on the US tech sector has been much more significant than the direct impact via the financial sector [and] investor aversion to financials is exactly what seems to have driven the preference for the tech sector,” they went on to say.

So, risk aversion i) triggered a drop in yields, which boosted high-growth, high-multiple stocks mechanically, and ii) prompted investors to seek safety in some of those same stocks, which looked even safer as they rallied.

The figure above shows how the two sectors’ fortunes have diverged dramatically.

Note that regional banks’ share of the broader US equity market is below 0.5%. Big-cap tech and other high-growth, long-duration equities, by contrast, comprise a huge share of the market.

So, a total wipeout in regional lenders would be immaterial in a vacuum (i.e., absent contagion) and even in a scenario where a handful of failures dents sentiment, if the attendant market jitters translate into lower yields at a time when, as a result of this year’s outperformance, duration proxies in equities have recovered lost market share, it’s not surprising that the net result was a rally (and lower volatility).

It’s not just tech, by the way. Nearly three quarters of S&P 500 market cap is negatively correlated to rates.

“Over the past six months, seven out of 11 sectors in the S&P 500 have recorded a negative correlation with two-year Treasury yields,” Kumar and Cassot wrote.

That, in essence, is how regional bank failures led to higher stocks (overall) and lower volatility. And it may not be over.

Assuming credit conditions continue to tighten, thereby substituting for the additional rate hikes the Fed planned prior to March 8, investors could continue to allocate to bonds, driving down yields and driving up growth stocks through multiple expansion.

Or it could all fall apart for stocks tomorrow. You never know. And that’s what makes it fun.