These bond holdings have already slumped in value, thanks to a combination of sales and the revaluation that occurs when rates rise—the potential for which is known as “duration risk”. Long-term foreign-bond holdings by “other financial corporations”, a category which includes insurance firms, investment outfits and pension funds, ran to $1.5trn in June, the most recent figure available, some $293bn below their level at the end of 2021.
But there is a risk from currency movements. As Brad Setser of the Council on Foreign Relations, a think-tank, has noted, the rise in American interest rates has made hedging against currency risk far more expensive. This is true for both investors and the companies and governments from which they once bought bonds. Japanese investors sold $165bn more in foreign long-term bonds than they bought last year, the largest disposal on record.
Trying to spread the bankdemic to Japan?
The next shoe to drop will be when BOJ has to fire sell USTs. It’s coming.
ROFL
What the hell did they think would happen to the bond portfolio? SiliconValleyBank
Something tells me they wont like what they find
Minas will
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