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Comment by MuffinFlavored | Hacker News Reader

> The portfolio, consisting mostly of U.S. Treasuries, had a book value of $23.97 billion and its sale fetched proceeds of $21.45 billion for SVB, it said.

10.5% discount? Why didn't somebody else offer say... 9.5% off? Seems like free money?

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The book value is at par. The market to market value is probably closer to a 15% discount from par if they tried to liquidate immediately. So this is likely actually a premium.

> market to market value is probably closer to a 15% discount from par if they tried to liquidate immediately

Correct. The only way someone makes money on these is by borrowing against them. Conveniently, it now looks like the Fed will lend against the face value of Treasuries at the discount window.

Since this is now an extra thing you can do with bonds (if you're a bank), that presumably increases their value, and thereby drives down their yield, right? It depends on what the lending rate on the bonds is. I assume this is calibrated so buyers are indifferent between buying bonds and taking some other alternative... Surely the rate is lower bounded by that on short term treasuries, or else you'd just borrow against bonds to buy T-bills and collect interest...

The only bonds that are eligible for new Fed's lending facility are the ones that were purchased on or before 3/13. So you won't be able to fully arbitrage by buying bonds and borrowing against them and closing arbitrage. Fed will make sure that the only banks who use new facility - are the ones who desperately need liquidity, like in SVB's situation

plus you pay overnight rate+10 basis points, so it is not totally free money either

Given that these are the deepest securities markets in the world, why not string out the sales over a few day's time so parties smaller than megabanks could bid, presumably higher?

They were probably under a lot of pressure to start making some progress on this as soon as possible. Fast resolution is a strong indicator of strong financial markets. Goldman is just more nimble than the competition.

Apparently these securities are long-ish dated bonds, currently under water because of interest rates going up. Only big institutions can afford to wait for interest rates to go down and price to go back up again (and judging by how inverted the yield curve is, rates will go down in a few years).

A few years from now current buyers may even make money on these. I was thinking the Treasury will take over the bonds - they certainly have the capability to wait a few years.

Unless there is deflation, the price of these bonds isn’t going up. Principal has lost its value far more than the interest rate will ever compensate for.

No one is paying book value for a $100 bond that’s paying 1.5% for the next 10 years when they can give the govt those $100 and get 3% instead.

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