Falling bond prices and rising yields are threatening the recovery in the balance sheets of...

Falling bond prices and rising yields are threatening the recovery in the balance sheets of global banks, which have built up huge portfolios of liquid securities to comply with regulatory requirements and due to a lack of better investments. For example, 90% of Bank of America's (BAC) $315B portfolio comprises mortgage bonds and Treasurys. Some analysts, though, believe that QE tapering should increase interest margins and offset the one-time hit to book values because of rising bond yields.

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Comments (8)
  • bbro
    , contributor
    Comments (11240) | Send Message
    The Treasuries (which is small) they own are at an aggregate yield of 2.86%...the agency mortgage securities are owned at 2.91% (which is primarily a 5 to 7 year maturity range)....remember the 5 year treasury is currently 1.5%....
    26 Jun 2013, 04:13 AM Reply Like
  • MexCom
    , contributor
    Comments (3077) | Send Message
    The banks don't mark to market on a daily basis. If they did, the current portfolio would be valued much higher than what they are carrying on the balance sheet, IMHO. Older LT bonds purchased at par that yielded 2-3% higher than current yields 3-4 years ago were recently quoted at a premium. They still will all be redeemed at par value regardless. Even with the current decline in the market - it has no impact on the balance sheet. Some of these bonds reaching their due date next month will be replaced by lower yielding bonds as has been done during the Fed Q easing and low interest rate policy era that will becoming to an end next year. All in all, this decline in the market prices of the bank stocks and bonds is the rare opportunity to buy at sharply lower prices. I more than doubled up on my positions in BAC common stock and 4 different hi-yield funds during this decline.
    26 Jun 2013, 05:20 AM Reply Like
  • John/Jack
    , contributor
    Comments (163) | Send Message
    The duration of a bank securities portfolio is short. Very short. And there is nothing is this world the banks want more than higher rates.
    26 Jun 2013, 06:47 AM Reply Like
  • DoowopDave
    , contributor
    Comments (253) | Send Message
    The banks are aware that yields have been extraordinarily low & have hedged their purchases. As stated above, they will be redeemed at par. For BAC this issue is not a problem. Litigation, poor public relations & sub par customer service focus are.
    26 Jun 2013, 07:45 AM Reply Like
  • mickmars
    , contributor
    Comments (1312) | Send Message
    Big banks win either way rates go.
    26 Jun 2013, 08:30 AM Reply Like
  • tom_t
    , contributor
    Comments (323) | Send Message
    Yes, especially since they probably plan to keep savings rates as low as possible regardless of where rates go.
    26 Jun 2013, 09:04 AM Reply Like
  • Whitehawk
    , contributor
    Comments (3121) | Send Message
    The article is about global banks. The selloff pressure of late has been coming from foreign holders.


    Banks do want higher rates and a steeper curve, and they have held too many long-term Treasurys in reserve, which is a problem as these are sold off. Unfortunately it is likely that banks will pocket the spreads and not immediately pass a share on to depositors as loan growth picks up. It will be interesting to see the extent of securitization of long-term mortgages and loans to get them off bank books.




    26 Jun 2013, 10:07 AM Reply Like
  • Voice of common sense
    , contributor
    Comments (141) | Send Message
    One never knows what a bankster might or might not do. After all, they aren't known for their native intelligence.
    26 Jun 2013, 08:45 PM Reply Like
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