June 25, 2024

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Bond-market crash leaves big banks with $650 billion of unrealized losses as the ghost of SVB continues to haunt Wall Street

2 min read

Bank of America shares have fallen 14% this year.Spencer Platt/Getty Images

  • Big banks are sitting on $650 billion of unrealized losses, Moody’s has estimated.

  • It’s a sign even Wall Street’s best-known names are feeling the heat from the Treasury-market rout.

  • Crashing bond prices sank Silicon Valley Bank earlier this year, and there may be more chaos to come.

Crashing bond prices sank Silicon Valley Bank in March — and there’s reason to believe that what triggered the California lender’s collapse may be haunting Wall Street again.

The brutal Treasury-market meltdown has hit some of the largest financial institutions hard, dragging down the share prices of big names such as Bank of America and fueling fears that the turmoil triggered by SVB’s bankruptcy may not be over just yet.

Here’s everything you need to know about unrealized losses, including why they’re dragging on bank stocks and whether they could trigger another financial crisis.

Unrealized losses

Treasury bonds — debt instruments the government issues to fund its spending — have been on a nightmarish run since the onset of the pandemic, with investors fretting about rising interest rates and the long-term viability of the US’s massive deficit.

BlackRock’s iShares 20+ Year Treasury fund, which tracks longer-duration debt prices, has plunged 48% since April 2020. Meanwhile, 10-year Treasury yields, which move in the opposite direction to prices, recently spiked above 5% for the first time in 16 years.

As a result of that sell-off, some of the US’s biggest banks are now sitting on unrealized, or “paper,” losses worth hundreds of billions of dollars. That means the value of their bond holdings has plunged, but they’ve chosen to hold on rather than offload their investments.

Moody’s estimated last month that US financial institutions had racked up $650 billion worth of paper losses on their portfolios by September 30 — up 15% from June 30. The ratings agency’s data still doesn’t account for a hellish October…



2023-11-07 16:18:43

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