BOND MARKET CRASH? Big Banks Have $650 Billion of Unrealized Losses Noah
by Noah 10 November 2023
Earlier today I brought you the report that Moodys has DOWNGRADED the USA to a Negative outlook.
The United States of America.
But weve been warning you as loudly as we can that this was coming!
More on that below in case you missed it.
But thats not all the bad news out today
No folks, its starting to look VERY ugly almost everywhere you look.
We just had this happen, FEDWIRE going down, major issues, reports of hacking:
It almost feels like theyre about ready to shut this current system off and roll us into a new one, doesnt it?
One that uses Gold, Silver and Cryptocurrency?
Hey, what do I know, I could be totally wrong, but sure feels like it to me!
After all, this happened last Friday:
Sure does seem like they love testing these things (or breaking these things) on Fridays, doesn't it?
Things that make you go "hmmmmmm".
But the even bigger story, perhaps, is the impending Bond Market Collapse.
Even if you don't know much about bonds or how they operate, trust me that this is historic, unprecedented, and very, very bad.
Unlike the last time, there are no "bond vigilantes" coming to bail us out.
For the visual learners:
Massive report on Yahoo earlier:
From Yahoo News, here's more on the $650 BILLION in pending losses -- gee, you think that's going to cause a problem or anything?
Crashing bond prices sank Silicon Valley Bank in March and there's reason to believe that what triggered the California lender's collapse may be haunting Wall Street again.
The brutal Treasury-market meltdown has hit some of the largest financial institutions hard, dragging down the share prices of big names such as Bank of America and fueling fears that the turmoil triggered by SVB's bankruptcy may not be over just yet.
Here's everything you need to know about unrealized losses, including why they're dragging on bank stocks and whether they could trigger another financial crisis.
Treasury bonds debt instruments the government issues to fund its spending have been on a nightmarish run since the onset of the pandemic, with investors fretting about rising interest rates and the long-term viability of the US's massive deficit.
BlackRock's iShares 20+ Year Treasury fund, which tracks longer-duration debt prices, has plunged 48% since April 2020. Meanwhile, 10-year Treasury yields, which move in the opposite direction to prices, recently spiked above 5% for the first time in 16 years.
As a result of that sell-off, some of the US's biggest banks are now sitting on unrealized, or "paper," losses worth hundreds of billions of dollars. That means the value of their bond holdings has plunged, but they've chosen to hold on rather than offload their investments.
Moody's estimated last month that US financial institutions had racked up $650 billion worth of paper losses on their portfolios by September 30 up 15% from June 30. The ratings agency's data still doesn't account for a hellish October where the longer-term collapse in bond prices spiraled into one of the worst routs in market history.
These "losses" are not the same as debt, however, which describes actual borrowings that need to be repaid.
Bank of America is the big lender worst affected by the crash in bond prices, having disclosed a potential $130 billion hole in its balance sheet last month.
The other "Big Four" banks Citigroup, JPMorgan Chase, and Wells Fargo have also racked up unrealized losses in the tens of billions, according to their second- and third-quarter earnings reports.
Another SVB-style crisis?
Silicon Valley Bank failed in March after disclosing a $1.8 billion loss on its own bond portfolio, triggering a run on deposits. Similarly, big banks' huge unrealized losses are also sparking concern among Wall Street doom-mongers.
"'Higher for longer' is absurd baloney," the market vet Larry McDonald said in a post on X Sunday, referring to the Fed signaling it would hold interest rates at about their current level well into 2024 in a bid to kill off inflation. "A 6% + Fed funds and Bank of America is near insolvency.">
It's important to remember that BofA's $130 billion losses are still unrealized. Unlike SVB, it isn't officially in the red yet because it has not sold its bond holdings.
The bank's chief financial officer, Alastair Borthwick, shrugged off the market's worries on last month's earnings call, pointing out that most of the bank's fixed-income portfolio was low-risk government bonds it planned to hold until the debt expires.
"All of these are unrealized losses are on government-guaranteed securities," he told reporters. "Because we're holding them to maturity, we will anticipate that we'll have zero losses over time."
There's still a possibility that spooked BofA customers will pull their money en masse, as they did with SVB but that hasn't happened. In fact, deposits are up after registering about 200,000 new accounts in the third quarter.
Read that last part that I put in bold....
Folks, this is YAHOO NEWS speculating that we may soon see a BANK RUN on Bank of America!
That would be the Black Swan event, no doubt.
Can you imagine what would happen after that?
This all comes on the heels of this report from earlier today:
BREAKING: Moody's Cuts USA Outlook To "Negative"
Click for Full Text!
The House of Cards is collapsing.
Plenty of X posts at source.