No matter how many times you say this it's not going to be true. If you hold bonds to maturity you get the principal back. If you sell them at market rates you don't. Those are different outcomes.
Nobody is talking about taking on debt at market rates to float the bonds. The bank died because it couldn't do that and couldn't raise capital in other ways either. Now we are talking about the government backstopping things, which is a whole different ballgame.
If your bond 10y bond you bought two years ago pays 1.5% and you need to take on a loan at 3.5% for 8 years to be liquid, then you are still around 16% in the red.
You will find that this is also roughly what the market will discount the bonds.
If you need money now and not in the future, there is cost. The fact that the principal gets paid at maturity is irrelevant - a risky bond does have interest rate sensitivity, too.
>Selling the bonds now at their current valuation or taking on debt and hold them to maturity lead to roughly equivalent outcomes.
Correct. This is literally why bond prices move inversely to changes in interest rates.
The people criticizing you here are ignoring carrying costs (which are fundamental to finance math) and assuming that default risk is the only form of risk (which is obviously false).
twblalock|3 years ago
Nobody is talking about taking on debt at market rates to float the bonds. The bank died because it couldn't do that and couldn't raise capital in other ways either. Now we are talking about the government backstopping things, which is a whole different ballgame.
xorfish|3 years ago
If your bond 10y bond you bought two years ago pays 1.5% and you need to take on a loan at 3.5% for 8 years to be liquid, then you are still around 16% in the red. You will find that this is also roughly what the market will discount the bonds.
RandomLensman|3 years ago
rvnx|3 years ago
If SVB was paying 4.50% (as they claim on their website), then even if the customer takes a 5% loss, it would be only a 0.50% realised loss.
I genuinely don't understand why the regulator doesn't push for that unless there is some "lobbying" involved.
DebtDeflation|3 years ago
Correct. This is literally why bond prices move inversely to changes in interest rates.
The people criticizing you here are ignoring carrying costs (which are fundamental to finance math) and assuming that default risk is the only form of risk (which is obviously false).