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let's say you have an emergency fund of 6x your monthly earnings. Instead of holding that in cash, you put that money into US treasuries at a price of 1:1. Whe
by eek2121 4y ago
let's say you have an emergency fund of 6x your monthly earnings. Instead of holding that in cash, you put that money into US treasuries at a price of 1:1.
When yields rise, prices fall. Remember that.
Now let's say you need to access that emergency fund, and the amount you need is 90% of it. However, what you've found is that treasury prices have fallen so far, your investment is now only worth 50% of what it was before unless you hold it for another 5 years. If you don't sell now, you will be homeless. If you do sell now, you buy a bit of time and can possibly get a loan, and barring that, you will be homeless.
That is what happened to SVB.
- ummonk 4y agoI understand how they ended up with losses, having bought long duration securities at the top. I'm saying they were still solvent despite the losses. They just weren't liquid.
- mbreese 4y agoSolvent relative to the maturity date on the bonds though, right? If you need a closer date (because you need to fulfill customer cash flow requests), then solvent plus illiquid can become insolvent quickly.
- ummonk 4y agoNo I think more likely than not it's outright solvent if you look at current market value of the bonds. We'll find out by Monday whether it has been acquired or not.