Fears spread over fallout from rising interest rates
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.
Jason Benowitz, senior portfolio manager at CI Roosevelt, said SVB’s risks were not unique with many banks sitting on such unrealised losses because rates have moved so rapidly.Bonds lose value when yields rise in a high rate environment. Smaller banks are at greater risk, analysts said. Geoffrey Yu, senior EMEA market strategist at BNY Mellon, said investors could “take heart” from signs that the financial system has taken global rate hikes in its stride.
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