SVB’s Collapse Shows the World’s Favorite Safe Asset Isn’t Risk-Free
US Treasuries came back to haunt investors and bankers who ignored the basics of interest-rate risk—and there could be more surprises in store.
Illustration: Chanyu Chen for Bloomberg Businessweek
Look deeper into the latest US banking crisis, and the cause may come as a surprise to anyone still thinking in terms of the crash of 2008. It wasn’t dodgy loans to impecunious homebuyers that sank Silicon Valley Bank. It was a stash of what are thought to be the safest securities on Earth: US Treasuries.
Those loans to the government were, of course, entirely safe in a very important sense. Uncle Sam is going to be good for the cash. (Set aside an unforeseen disaster with the debt ceiling—more on which in a moment.) But the final repayment date of SVB’s bonds was typically years away. The problem is what happens to their price in the meantime. Purchased during a time of ultralow interest rates, those long-maturity Treasuries were always liable to lose their immediate resale value if rates took off. Which they’ve done in a big way over the past year.