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Treasury yields climb 60 basis points
Rates climb
Higher rates affect people's ability to refinance a home, buy a new car, or buy things on credit, which covers the majority of Americans. Two Treasury auctions are coming up.
Bank balance sheets
An analysis run with ChatGPT looked at the reported balance sheets of the 4,295 banks with positive equity that report to the FDIC every month. It estimated that about 95 of them will see an impairment of more than 20 percent of their equity from the rate move over the last 30 days or so.
Reporting date
The next monthly reports, covering the period ending September 30, are published on October 30, which falls in the middle of the election cycle.
Why do rising rates hurt bank balance sheets?
Bond prices move opposite to yields, so bonds that banks bought when rates were lower lose market value when rates rise. Those losses are often unrealized, meaning they do not show up as income unless the bank sells the bonds. Silicon Valley Bank failed in March 2023 after losses on its bond portfolio and a run by depositors. The Federal Reserve's review of the failure found that customers tried to withdraw about 42 billion dollars in a single day.
Why do short-term yields follow the Fed?
Short-term Treasury yields track expectations for the federal funds rate, the overnight rate set by the Federal Reserve's policy committee. Investors price a Treasury bill against what they could earn by rolling over overnight lending. If they expect the Fed to raise rates, bill yields rise ahead of the move. The Federal Open Market Committee meets eight times a year.
How does a Treasury auction work?
The Treasury sells its securities by auction, with bids submitted in competitive and noncompetitive forms. Noncompetitive bidders accept whatever yield the auction sets, while competitive bidders name the yield they want. The auction results determine the yield on each security sold that day. Primary dealers, a group of large banks that trade directly with the New York Fed, are expected to bid at every auction.