The Knowledge Vault Newsletter Sign-up >>>


Posts Tagged ‘bond portfolio’

Bond Portfolio Blunders

April 3rd, 2023 by Kurt L. Smith

It is hard to fathom a $42 billion run on a bank. In one day, no less (source: State of California). One thing for sure, the dollars are bigger now. No longer do you need to stand in line to get your money from your bank. Zap, you can move it. Bang, the doors of the bank are shut. Just another day (or weekend) in our financial life.

Silicon Valley Bank (SVB-NYSE) did what any rational investor would do, realizing the bond market was in a bear. It sold. Not at the bottom in October, but in March, during the bond bear market correction. As I have said on these pages, a correction, particularly the end of a correction, is a good time to sell.

SVB had a plan and it hired Goldman Sachs to help implement it (source: Rueters). Sell $24 billion in bonds, mostly U.S. Treasury securities, for $21.45 billion. Considering 2022 was the worst year for bond market performance in the history of history, the losses could have been much worse. Goldman also advised the bank on a $2.25 billion capital raise to replace the bond loss. A prudent plan, it sure appeared.

No bank can survive a run on its deposits. Prudently run bank or otherwise, a bank run leads to a closed bank. So that is what the state of California did. The bank was closed. Now what?



Tweetomatic error: Could not authenticate you.