Ignore the headlines and news anchor, they don't really understand shit. But stuff is just about to kick off and I am going to help explain what is happening and will be happening in the coming weeks and months.
From the start of this fed cycle, I have been wondering who has been eating losses. Basic financial equation 101 teaches you that the present value of an asset is a function of the discount rate applied to its future cf or coupon rate. When the 10/30 year went from 1.5-2.0% in 2019-2021 to 4-5% this year, this meant the market value of those bonds would have fallen by close to 20-25%.
For example TLT, which is the 30 year teasury ETF, has fallen by about 21% in the LTM.
Most people don't understand the bond market in the US is the largest in the world, dwarfing the stock market. It is about twice the size of the stockmarket and is the deepest and most liquid securities market in the world. Within this market, the deepest and most liquid part of the market is made up of US treasuries and mortgage backed agency MBS securities.
https://preview.redd.it/nuaouidc91na1.png?width=382&format=png&auto=webp&s=a2253c2fa00b34fffb1c3d835a530a2f063ca266
With the sudden spike up in rates over the last 12-16 months, the mark to market losses of the bond market is probably somewhere to the tune of 4-6 trillion. And I have always been wondering where that was going to show up and blow something up in the financial market. And the answer is in the banks.
Don't believe what they tell you, Silicon Valley Bank was a very conservative bank. Out of their \~200 billion in assets, very little (<0.5%) was venture debt lending. As you can see in their Q4 Balance Sheet, they had 15 billion in cash/cash like securities, about 120 billion investment securities and 70 billion in loans.
https://preview.redd.it/1txj1mjma1na1.png?width=523&format=png&auto=webp&s=1545218bb68e66ee4af075437b9fb9f170a36432
within that 120 billion investment securities, it is almost entirely treasuries and Agency MBS/CMO and CMBS with a touch of muni bonds. You can't build a more conservative book if you tried. As these are all effective government securities as the GSEs are still in conservatorship under the treasury. For years due to Basel III, US banks have been derisking and now most of their balance sheets consists of government or quasi government securites which have almost no default risks.
https://preview.redd.it/lsa5410ab1na1.png?width=1383&format=png&auto=webp&s=b4996cc97b23bbf068198fd88faa4c631a1d3a3c
Now looking at the loan book, you can see the bulk of it is in global fund banking and investor dependent. Global Fund banking is an extremely safe segment, it consists of largely funding or bridging loans to venture capitalist making transactions. So for example if a VC wants to invest in company A, but they want to wait 2 months before drawing down from their LPs, they will go to SVB to get a credit line for this purpose. This is an extremely safe business model as Venture/PE Funding is contracted funding and there has been basically no defaults on these types of loans ever in history. Then you have private bank, which consisted of lending to rich people over collateralized through the value of their houses, which is also a pretty safe business model as their asset coverage typically exceeds 150% of the loan value.
Even the investor dependent segment is typically very safe book, as they will write loans as simply a bridge when a financing round for the company has already closed, but are still waiting a few months for the all the papers to be signed and the funds to be transfered.
https://preview.redd.it/r44w54mdc1na1.png?width=1382&format=png&auto=webp&s=66d0b5e8df56629b339215eadf3c7c41a6fd9560
So wtf is happening, this is a bank that is holding like 2/3 of its book in government papers and the rest in fairly safe lending. The speculative lending to early tech business represent <0.5% of the book.