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Bonds carry risk. The value declined, thus they don’t have the money. If the bond issuer defaults then they wouldn’t receive money back on any timeline. Thus c
by adam_arthur 4y ago
Bonds carry risk. The value declined, thus they don’t have the money.
If the bond issuer defaults then they wouldn’t receive money back on any timeline. Thus calling it a duration mismatch is misleading.
More accurately, they took on a level of duration and credit risk, and it didn’t pay off.
- chollida1 4y agoI think you are misunderstanding what happened. Their portfolio only had an unrealized loss, if they held they would have been whole. They were forced to sell long duration assets before they matured. This is the very definition of a duration mismatch. Short duration money got called back while the long duration money was below par. if they could hold the long duration to maturity they would be whole with no losses. Not sure what I'm failing to explain. Can you better explain why you disagree?