LONDON : For months, investors had shrugged off the threat of rising interest rates. That changed this week.U.S. tech specialists Silicon Valley Bank's failed scramble for fresh capital, after losing $1.8 billion selling a package of bonds to meet depositor demands for cash, sparked a global rout in bank
LONDON : For months, investors had shrugged off the threat of rising interest rates. That changed this week.
"This is the first moment since rates started to rise where systemic risk has really arisen," said Florian Ielpo, head of macro at Lombard Odier Investment Managers.After more than a decade of economic life support by way of easy policy and the flooding of markets with trillions in cash that even spawned virtual crypto money, central banks are slamming into reverse.
Bets on further hikes have ratcheted up in recent days as inflation remains stubbornly high, with Federal Reserve Chair Jerome Powell on Wednesday reaffirming his message of higher and potentially faster rate hikes. SVB's loss on the sale of its $21 billion available-for-sale securities, consisting mostly of U.S. Treasuries, has sparked concerns about the bond portfolios of U.S. banks.
Banks are not required to immediately recognise paper losses on a bond, allowing some of these risks to slumber on their books. "The SVB situation is a reminder that many institutions are sitting on large unrealised losses," said AJ Bell investment research director Russ Mould.
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