Bonds Backfiring
Two financial institutions, Silvergate Capital and Silicon Valley Bank (SVB), collapsed early last week due to a series of ill-fated investment decisions which were exposed by global interest rate tightening. The collapses came after the institutions invested large amounts of capital in long-dated US government bonds, which were considered relatively low risk. However, as interest rates rose rapidly to combat spiralling inflation, bond portfolios started to lose significant value. As a result, when cash demands…