The Nomadic Goat on Nostr: OK... so... we understand SVB issue and why their shares dropped ~60%, but, why is ...
OK... so... we understand SVB issue and why their shares dropped ~60%, but, why is this a commotion all around?
Recap: SVB had a terrible timing on buying their $21B bonds portfolio, as it had ~1.80% yield and 3.6 year duration. They bought just before the interest hikes. For a comparison, today the same 3 year bond is paying close to 5%.
Due to this, the value of their bonds feel terribly, afterall, who would want to buy a low paying bond, when apparently interest rates are not coming down anytime soon?
So, they sold their bond portfolio with a $1.8B loss in order to reposition with a better yield. This added to the low liquidity as most of their clients are tech companies, which currently do not have a lot of cash laying around to deposit with them.
But all banks around seems to have felt this.
So... would SVB just be an unlucky bank with bad timing, or actually just the first one to take action??
Time will tell.
Recap: SVB had a terrible timing on buying their $21B bonds portfolio, as it had ~1.80% yield and 3.6 year duration. They bought just before the interest hikes. For a comparison, today the same 3 year bond is paying close to 5%.
Due to this, the value of their bonds feel terribly, afterall, who would want to buy a low paying bond, when apparently interest rates are not coming down anytime soon?
So, they sold their bond portfolio with a $1.8B loss in order to reposition with a better yield. This added to the low liquidity as most of their clients are tech companies, which currently do not have a lot of cash laying around to deposit with them.
But all banks around seems to have felt this.
So... would SVB just be an unlucky bank with bad timing, or actually just the first one to take action??
Time will tell.