Bonds Analysis by The Tokenist (Timothy Fries) covering: United States 10-Year, 10-2 Year Treasury Yield Spread, United States 10-Year TIPS. Read The Tokenist (Timothy Fries)'s latest article on Investing.com
After the crisis in spring, banks may come under pressure once again as sovereign bond yields soar to new peaks.
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.But the domino effects of rising bond yields extend way beyond government funding, and one particular sector that could suffer from this is banking.
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.Among many other things, bonds were one of the factors that contributed to SVB’s collapse 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.
This news led to depositors withdrawing their funds, forcing SVB to sell bonds, and they could no longer be considered held-to-maturity . 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.Skyrocketing bond yields put markets in a spin Fed’s higher for longer calls grow louder US 10-year yield approaches 4.
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