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How is it a real loss? Bonds have terms. If the bank sits on the bond until its term of maturity it gets a certain amount of money. Let's say the bond at matu

How is it a real loss? Bonds have terms. If the bank sits on the bond until its term of maturity it gets a certain amount of money. Let's say the bond at maturity is worth X. The bank says the bond is worth Y. The market says the bond is worth Z. If Y > Z, that's only a problem if you sell. There is no loss - realized or unrealized - if you hold to maturity unless Y > X. However, how could this ever be the case? No one would pay more than X, so the bank could never claim the market value was higher.

rileymat2 4y ago
However, they are dependent on the returns to offer banking customers interest, if there are other ways for customers to earn enough interest to change banks, it will force the sale of the the bond at the loss. And, it repeats itself, realized losses, followed by customer uncertainty, followed by more withdrawals.
light_hue_1 4y ago
You're confused about how bonds work and about opportunity costs. You're assuming that the banks bought the bonds for their face value. Banks buy bonds for their price, not face value. The Treasury, for example, auctions their bonds so their price might never have been their face value. People of course pay more than the face value for a bond (what you call X)! One reason is because bonds pay interest; although this can happen in other rare situations when you willingly get a negative interest. But that's not even the main problem. If you hold the bond to maturity you have an asset that pays back i% in interest. But now you can get an equally risk-free asset that pays back j% of interest. Where j is far larger than the i that your bond is giving you. You are losing money by being forced to hold this bond. When you get into a situation where you are better off selling the asset and buying a new one because of the interest rate difference, well, there you go, that's a real loss. Literally there's a course of action where your bank's balance sheet would be much bigger than where it is heading now. It's just an unrealized loss at the moment because people aren't pulling the trigger.
- admax88qqq 4y ago
  > You are losing money by being forced to hold this bond. Not making as much money as you could be is not the same as losing money.

rileymat2 4y ago

However, they are dependent on the returns to offer banking customers interest, if there are other ways for customers to earn enough interest to change banks, it will force the sale of the the bond at the loss. And, it repeats itself, realized losses, followed by customer uncertainty, followed by more withdrawals.

light_hue_1 4y ago

You're confused about how bonds work and about opportunity costs. You're assuming that the banks bought the bonds for their face value. Banks buy bonds for their price, not face value. The Treasury, for example, auctions their bonds so their price might never have been their face value. People of course pay more than the face value for a bond (what you call X)! One reason is because bonds pay interest; although this can happen in other rare situations when you willingly get a negative interest. But that's not even the main problem. If you hold the bond to maturity you have an asset that pays back i% in interest. But now you can get an equally risk-free asset that pays back j% of interest. Where j is far larger than the i that your bond is giving you. You are losing money by being forced to hold this bond. When you get into a situation where you are better off selling the asset and buying a new one because of the interest rate difference, well, there you go, that's a real loss. Literally there's a course of action where your bank's balance sheet would be much bigger than where it is heading now. It's just an unrealized loss at the moment because people aren't pulling the trigger.

admax88qqq 4y ago
> You are losing money by being forced to hold this bond. Not making as much money as you could be is not the same as losing money.