Amongst the errors made by the management of SVB, the most egregious and frankly amateur was managing the mismatch of on demand deposits and investment in high quality, liquid term securities. This is a first base skill required of managers in fixed income. The 10 year part of the curve has actually rallied in the last six months as the T curve has inverted. They, most likely, were primarily exposed in the 2-3yr part of the curve which has been most impacted by the Federal Reserve and spread products which have widened as a result. Their losses are MTM and if they could hold the securities to maturity, then there is no loss. Their mistake was not thinking through the pace at which deposits would be called once their MTM unrealized losses started to exceed their shareholders. funds.
Amongst the errors made by the management of SVB, the most egregious and frankly amateur was managing the mismatch of on demand deposits and investment in high quality, liquid term securities. This is a first base skill required of managers in fixed income. The 10 year part of the curve has actually rallied in the last six months as the T curve has inverted. They, most likely, were primarily exposed in the 2-3yr part of the curve which has been most impacted by the Federal Reserve and spread products which have widened as a result. Their losses are MTM and if they could hold the securities to maturity, then there is no loss. Their mistake was not thinking through the pace at which deposits would be called once their MTM unrealized losses started to exceed their shareholders. funds.
Spot on, Noel. Thanks for the comment.