US Banks Are Struggling With $650 Billion In Unrealized Losses On Bond Holdings — Here's How They Can Get Out
Portfolio Pulse from Bibhu Pattnaik
US banks are facing $650 billion in unrealized losses on bond investments due to interest rate hikes. Banks invested in low-yield Treasury bonds before the hikes, and now the value of these bonds has plummeted. The failures of Silicon Valley Bank, First Republic Bank (FRC), and Signature Bank (SBNY) were partly due to such losses. Banks are considering holding the debt until maturity or selling it to invest in higher-yielding bonds. The banking sector is under pressure, with ETFs like SPDR S&P Bank ETF (KBE) and SPDR S&P Regional Bank ETF (KRE) seeing declines.
November 12, 2023 | 2:46 pm
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NEGATIVE IMPACT
First Republic Bank is among the banks that faced issues due to the diminishing value of bond holdings, contributing to the sector's struggles.
First Republic Bank's direct mention in relation to bond losses suggests a negative impact on its stock price in the short term due to investor concerns.
CONFIDENCE 80
IMPORTANCE 75
RELEVANCE 80
NEGATIVE IMPACT
SPDR S&P Bank ETF (KBE) has experienced declines this year, reflecting investor concerns about the banking sector's future profitability.
KBE's decline is directly linked to the broader issues in the banking sector, suggesting continued short-term negative pressure on the ETF.
CONFIDENCE 75
IMPORTANCE 70
RELEVANCE 70
NEGATIVE IMPACT
SPDR S&P Regional Bank ETF (KRE) has also seen notable declines, indicating market apprehension about the banking sector's health.
KRE's performance is affected by the same factors impacting KBE, with the ETF likely to face short-term negative sentiment.
CONFIDENCE 75
IMPORTANCE 70
RELEVANCE 70
NEGATIVE IMPACT
Signature Bank's failure was partly attributed to the reduced value of its bond holdings, indicating stress in the banking sector.
Signature Bank's mention in the context of bond losses and bank failures suggests a negative impact on its stock price in the short term.
CONFIDENCE 80
IMPORTANCE 75
RELEVANCE 80