Then the government starts selling those bonds a lot cheaper. To buy the same bonds you have today would only cost $900k.
Even though the 2030 value of those bonds is the same, the 2023 value just plummeted. (And they will gain more per day to eventually make up the difference.)
When your customers demand their money, you have to give them 2023 dollars.
A bond that you can redeem early has the safety of cash here. A bond that you can't redeem early does not.
Long term treasuries have declined 40% in value since they peaked in 2020.
https://www.google.com/finance/quote/TLT:NASDAQ
Banks hold a lot of treasuries as part of their capital requirements. So long as they intend to hold them to maturity, they don't have to mark them to market.
Banks collectively hold about $620 billion in loses in held-to-maturity securities right now since they have declined rapidly in value during the Fed's interest rate hikes.
https://www.aol.com/finance/why-silicon-valley-banks-crisis-...
If you can hold them to maturity, you're fine. If you need to sell them to raise cash (to cover other losses or during a bank run) those losses become real.
And if your startup had $10m in cash in SVB, but now you find out you're only getting back, say, $7m, that's very bad news for your business.
> Long term treasuries have declined 40% in value since they peaked in 2020.
This is inaccurate. What you linked to (TLT) aren't bonds, these are bond funds. The way a bond ETF works is that they have a stack of bonds that track the benchmark interest rate. They periodically sell off their old bonds and buy new ones, they don't just sit on them and wait for them to mature. That means TLT's NAV goes down when interest rates go up because they're selling lower interest rate bonds, and buying higher interest rate bonds.
Treasuries cannot lose value just like cash. They are as good as cash in almost every context. You can always sit on them until they mature and you'll get the full amount plus interest. You cannot lose money this way.
Where you can lose money though is if you have to liquidate them sooner. Why would someone buy a 3% 30y treasury for $X from you when they can get a 4% 30y treasury from the source for the same price? You have to sweeten the deal by paying out the difference in rates. This is where you can lose money.
SVBs issue was a mismatch in durations. They had too many demands for money out now, and too little available now. They have plenty of money coming in the future, but that's too late.
Reply to two basically correct statements, make a claim that's completely false, and then — and here's the genius — say a bunch of true statements that come around to support the view you're disagreeing with!
Be careful with absolute statements like that. While it hasn't happened so far with USA treasuries, its equivalents in many countries have lost value in the past.
No free lunch. Treasuries yield more than bills because they’re less liquid.
Only if your definition of risk is limited to default risk.
It looks like a lot of their holdings were in MBS and a lot of the treasuries were recently sold at losses (which necessitated raising capital, which appears to have set this whole thing off), but there is no reason this couldn't have happened if they only held treasuries anyway.
T-Notes - 2y-10y
T-Bonds - 20y-30y