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They can only offer that because their long term 10Y, 30Y treasuries bought back during ZIRP yield around the same. BofA has the highest losses[0] iirc, out of

They can only offer that because their long term 10Y, 30Y treasuries bought back during ZIRP yield around the same. BofA has the highest losses[0] iirc, out of all the banks, with their long term treasury holdings. Edit: linking article (I found it in a spreadsheet passed around Twitter at the time) [0] https://seekingalpha.com/article/4586797-list-of-banks-paper-losses-debt-securities-holdings https://seekingalpha.com/article/4586797-list-of-banks-paper...

loeg 4y ago
> They can only offer that because their long term 10Y, 30Y treasuries bought back during ZIRP yield around the same. I don’t think this explanation is plausible. 10-30 year bonds bought during 2020-2022 did not offer 5% yields. They were below 2.5% (30yr) and below 2% (10yr). Hence the “Zero” in ZIRP. Edit: I read the comment wrong but it’s still nonsensical the other way. ZIRP era bonds are already worth less. Banks can offer much closer to the ~5% safe rate than most are. Depositors are just largely insensitive to rates. The concept is called “deposit beta.”
- mise_en_place 4y ago
  Why would they offer 5%? Deposits effectively form a credit spread between the risk free rate (treasury bond) and what the bank pays depositors. Each additional basis point is netted to the bank as profit no? For example, the yield spread between a 2Y treasury bond w/ a coupon @ 4.25% and a savings acct APY @ 0.01% would be 4.24%.
  - bagacrap 4y ago
    Competition with other banks (as well as non bank places to hold money)
  - loeg 4y ago
    I'm not suggesting banks should offer depositors 5%. Yes, banks love Net Interest Margin.
- bagacrap 4y ago
  Banks don't mark these bonds to market so the fact that the older bonds have lower present value and higher yield (although still much lower than 5% on long bonds as a result of yield curve inversion) is not relevant. These banks cannot afford to pay close to the Fed overnight rate. Not too long ago someone tried to charter a bank that just took deposits and placed them in the Fed overnight, but the charter wasn't approved because the bank wouldn't perform the economic role expected of a bank, which is to make loans that stimulate small business.

loeg 4y ago

> They can only offer that because their long term 10Y, 30Y treasuries bought back during ZIRP yield around the same. I don’t think this explanation is plausible. 10-30 year bonds bought during 2020-2022 did not offer 5% yields. They were below 2.5% (30yr) and below 2% (10yr). Hence the “Zero” in ZIRP. Edit: I read the comment wrong but it’s still nonsensical the other way. ZIRP era bonds are already worth less. Banks can offer much closer to the ~5% safe rate than most are. Depositors are just largely insensitive to rates. The concept is called “deposit beta.”

mise_en_place 4y ago
Why would they offer 5%? Deposits effectively form a credit spread between the risk free rate (treasury bond) and what the bank pays depositors. Each additional basis point is netted to the bank as profit no? For example, the yield spread between a 2Y treasury bond w/ a coupon @ 4.25% and a savings acct APY @ 0.01% would be 4.24%.
- bagacrap 4y ago
  Competition with other banks (as well as non bank places to hold money)
- loeg 4y ago
  I'm not suggesting banks should offer depositors 5%. Yes, banks love Net Interest Margin.
bagacrap 4y ago
Banks don't mark these bonds to market so the fact that the older bonds have lower present value and higher yield (although still much lower than 5% on long bonds as a result of yield curve inversion) is not relevant. These banks cannot afford to pay close to the Fed overnight rate. Not too long ago someone tried to charter a bank that just took deposits and placed them in the Fed overnight, but the charter wasn't approved because the bank wouldn't perform the economic role expected of a bank, which is to make loans that stimulate small business.