U.S. banks' unrealized losses actually amount to $1.75 trillion, or 80% of their capital, causing hundreds of U.S. banks to be now insolvent.
In January 2022, when yields on U.S. 10-year Treasury bonds TMUBMUSD10Y, 3.471% were still roughly 1% and those on German Bunds were -0.5%, I warned that inflation would be bad for both stocks and bonds.
Higher inflation would lead to higher bond yields, which in turn would hurt stocks as the discount factor for dividends rose. But, at the same time, higher yields on “safe” bonds would imply a fall in their price, too, owing to the inverse relationship between yields and bond prices.
This basic principle — known as “duration risk” — seems to have been lost on many bankers, fixed-income investors, and bank regulators. As rising inflation in 2022 led to higher bond yields, 10-year Treasurys lost more value (-20%) than the S&P 500 SPX, +1.44% (-15%), and anyone...
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