The Great Bond Bomb Was Ticking So Loudly No One Could Hear It Over Its Own Noise
Now that the Big Bond Bust has happened, as promised here, everyone wants to know how it happened. I want to know how on earth so many of them didn’t know it was going to happen — especially those who were supposed to be watching for this … including the regulators who were actively causing it?
What follows are some of the reasons:
Their hubris
SVB had well over a year to prepare its portfolio to engage with the Fed’s decision to lift the yields on Treasuries, but it took no action to do so. At the time of its collapse 55% of its assets were still invested in bonds, mostly at low-interest rates available over the time when they acquired those bonds that are impossible to sell without a loss when interest rates rise. 47% of SVB’s assets were in long-term bonds (over 5 years to maturity) — the kind that fare worse when you have to trade them during a time when rates have risen!
Tim Gramatovich, chief investment officer at Gateway Capital, told Insider that even though the Fed has been raising interest rates for a year, it was as if a higher-interest-rate landscape came as a surprise for SVB.
“For a $200 billion bank to have no interest rate risk controls is staggering,” he said. “And of course the regulators and rating agencies are allegedly engaged here too. Doing what, we aren’t sure.”
And, yet, they took
Article from LewRockwell
