The demise of SVB had many causes. But at its heart was the firm's bond portfolio, which plummeted in value as interest rates rose. Little surprise, then, that analysts and investors are scrambling to locate similar hoards elsewhere
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.
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