SVB reminder to stock-market investors: 'Things tend to break' when Fed gets aggressive

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Investors weigh whether the high-profile collapse of Silicon Valley Bank could signal the start of a crisis. So far, the situation appears contained.

Analysts played down the threat to the U.S. banking system after the collapse of a regional lender Friday, but the failure of Silicon Valley Bank served to underline longstanding worries that the Federal Reserve’s aggressive series of interest rate hikes will eventually cause something in the world’s financial plumbing to break.

Investors tend to “shoot first and ask questions later,” noted Thomas Martin, senior portfolio manager at Atlanta-based GLOBALT Investments, in a phone interview. That fed a sharp rise in Treasury yields, which move opposite to price. Treasurys and other bonds suffered one of their worst years on record in 2022. That’s not necessarily a problem for banks that hold bonds to maturity. But it can be if they’re forced to sell.

Nevertheless, SVB’s troubles “are a timely reminder that when central banks throw their rate hammer around with abandon, things tend to break — if not in the real economy, then in the financial system,” Ashworth wrote.

 

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