Reserve

Impact

<div class="textg" style="text-align: justify; font-weight: lighter; line-height: 1.3em; font-size: 15px; border-radius: 3px; color: #80909a; padding: 10px; background-color: #F4F6F9; margin-bottom: 15px;">
 Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our&nbsp;<a href="https://tokenist.com/terms-of-service/" style="text-decoration:underline;color:#3c7b7b" target="_blank" rel="noopener noreferrer nofollow" class="deco-link">website policy</a>&nbsp;prior to making financial decisions.
</div>
<p class="has-drop-cap">Sovereign bond yields worldwide have surged to record-high levels recently as the Federal Reserve and other global central banks look determined to keep interest rates ‘higher for longer.’ This rout in the global bond markets can be detrimental to governments and banks, which are large holders of these securities.&nbsp;</p>
<h3 id="global-bond-yields-sitting-at-record-highs">Global Bond Yields Sitting at Record Highs</h3>
<p>After facing and outriding a severe sector-wide crisis earlier this year, banks may be in for another rollercoaster ride. Why? Rising bond yields.</p>
<p>The global bond markets face another potential rout as <a aria-label="‘higher for longer’ interest rates (opens in a new tab)" href="https://www.ft.com/content/42968686-926c-4a32-8868-494f891d0e26" target="_blank" rel="noopener noreferrer nofollow" class="deco-link">‘higher for longer’ interest rates</a> spark fears. Notably, the 10-year US bond yields are sitting at 16-year highs, while in Germany, they hit the highest level since the 2011 eurozone debt crisis. In Japan, where official rates are still negative, bond yields stand<a href="https://tokenist.com/bank-of-japan-to-buy-more-bonds-as-yields-soar-to-10-year-high/" rel="noopener noreferrer nofollow" class="deco-link"> at their 10-year peaks</a>.</p>
<p>Bond yields are closely followed because they determine governments’ funding expenses. In other words, the longer yields remain higher, the more they drive the interest costs governments have to pay.&nbsp;</p>
<h3 id="banks-facing-the-potential-impact-of-escalating-bond-yields">Banks Facing the Potential Impact of Escalating Bond Yields</h3>
<p>But the domino effects of rising bond yields extend way beyond government funding, and one particular sector that could suffer from this is banking. This is because banks are large holders of government bonds that sit on unrealized losses – a significant risk highlighted by the <a href="https://tokenist.com/fed-considers-new-rules-for-midsize-banks-after-svb-collapsed-with-90-deposits-uninsured/" rel="noopener noreferrer nofollow" class="deco-link">Silicon Valley Bank’s (SVB) collapse</a> in March.&nbsp;</p>
<blockquote class="wp-block-quote">
 <p>“(The bond selloff) will have a strong impact on banks that hold long end Treasuries. The longer it persists the more sectors it will hit.”</p> <cite>– said Mahmood Pradhan, head of macro at Amundi Investment Institute.</cite>
</blockquote>
<p>Meanwhile, rising interest rates and bond yields have also weighed on banks’ stock prices. Although the relationship between yields and the relative performance of bank stocks used to move in tandem, the same cannot be said for the current rate-hiking cycle.</p>
<p>Higher interest rates have been negatively impacting bank share prices. And with the Federal Reserve’s recently announced plans to keep rates elevated longer, the pressure on banks will likely continue.&nbsp;</p>
<div class="cta-referral"><img src="https://tokenist.com/wp-content/themes/thetokenist/assets/img/del/cta-referral-1.png" alt="" class="cta-referral__img" loading="lazy" decoding="async">
 <div class="cta-referral__text">
  <p>Join our&nbsp;<a href="https://t.me/thetokenist" target="_blank" rel="noopener noreferrer nofollow">Telegram group</a>&nbsp;and never miss a breaking digital asset story.</p>
 </div>
</div>
<h3 id="how-bonds-contributed-to-svb-s-collapse">How Bonds Contributed to SVB’s Collapse</h3>
<p>Among many other things, bonds were <a aria-label="one of the factors that contributed to SVB’s collapse (opens in a new tab)" href="https://www.oaktreecapital.com/insights/memo/lessons-from-silicon-valley-bank" target="_blank" rel="noopener noreferrer nofollow" class="deco-link">one of the factors that contributed to SVB’s collapse</a> this spring. Because the bank had a few traditional banking use cases for its excess cash, it invested $91 billion in Treasury bonds and government agency mortgage-backed securities.</p>
<p>These investments comprised about half of SVB’s assets, twice the banks’ average. However, when the Federal Reserve raised interest rates, bond prices plummeted, causing SVB’s bond holdings to lose $21 billion in market value.&nbsp;</p>
<p>This news led to depositors withdrawing their funds, forcing SVB to sell bonds, and they could no longer be considered held-to-maturity (HTM). Instead, they were categorized as “available for sale.” This shift in classification led to marked-down values on SVB’s financial statements, and actual sales crystallized the losses, contributing to the bank’s downfall.</p>
<div class="cta-sub js__cta-sub">
 <div class="cta-sub__start" data-step="1">
  <div class="cta-sub__title"><strong>Finance is changing.</strong>
  </div>
  <div class="cta-sub__subtitle">
   Learn how, with Five Minute Finance.
  </div>
  <div class="cta-sub__excerpt">
   A weekly newsletter that covers the big trends in FinTech and Decentralized Finance.
  </div> <button type="button" class="btn">Try it out (for free)</button>
 </div>
 <div class="cta-sub__form" data-step="2" style="display: none;">
  <script type="text/javascript" src="https://app.getresponse.com/view_webform_v2.js?u=QcLhh&amp;webforms_id=zw3Wv"></script>
 </div>
 <div class="cta-sub__result" data-step="3" style="display: none;">
  <div class="cta-sub__title">
   Awesome
  </div>
  <div class="cta-sub__caption">
   You’ve subscribed.
  </div>
  <div class="cta-sub__greeting">
   You’re well on your way to being in the know.
  </div>
 </div>
</div>
<p><em><strong>Do you think banks are at risk of another crisis similar to the one seen earlier this year, as bond yields continue to rise and rates remain elevated? Let us know in the comments below.&nbsp;</strong></em></p>
<p>The post <a rel="noopener noreferrer nofollow" href="https://tokenist.com/with-sovereign-bond-yields-rising-banks-likely-to-feel-the-heat-again/">With Sovereign Bond Yields Rising, Banks Likely to Feel the Heat Again</a> appeared first on <a rel="noopener noreferrer nofollow" href="https://tokenist.com">Tokenist</a>.</p>

With Sovereign Bond Yields Rising, Banks Likely to Feel the Heat Again

목차

Tokenist

2023년 10월 4일에 게재된 다른 기사

3AC co-founder Su Zhu’s Singapore villa turned into urban farm

Potential Outcomes of a $1,000 Investment in SHIB and DOGE Over a 12-Month Period

Alameda Research lost over $500,000 per day for a month after its launch

Lucid Group, Inc: LCID Rose 3.86% Weekly; Will the Surge Stop?

SEC Appeal Denied, XRP Leaders and XRP Army Celebrate

Coinbase’s Legal Battle with SEC: Expert Forecasts 50% Victory Odds

무료 뉴스레터에 가입하여 매일 최신 암호화폐 소식을 받아보세요!