- Jonathan Poyer
Checking In on the SVB Storm - How Will the Fed Respond?
While normally we do not like to comment too much on these extreme macro issues, we thought we might share a few items as this is much more the top of conversations than we have previously seen. Especially since those "Mortgage Backed Securities (MBS)" are back in the news and featured prominently.
To our knowledge the sales conducted by SVB were in the form of US Treasuries and Agency MBS. Theirs seems to be much more a story of having duration amidst the Fed tightening 450bps rather than anything related to the performance of such securities, collateral/housing questions etc.
Check out these spreads:
SVB Bank had last week sold its $21-billion bond portfolio consisting of US Treasuries and mortgage-backed securities at a loss of $1.8 billion.
The bank had invested heavily in Mortgage-backed securities and US Treasuries last year through deposit money. The bank had seen an increase of deposits but struggled to find enough credit demand to deploy that money at desired yields.
Over 95 percent of these mortgage-backed securities were over 10-years in duration, with a weighted average yield of 1.56%.
As per reports, SVB had over $80 billion worth of investments in mortgage-backed securities.
The news from last week and into the weekend has led to increased volatility in the short-term. However, it also seems to be a significant tempering point for the Fed’s future actions, and a cut is now priced into the market as early as July.