Re:Ask HN: How is the SVB situation affecting your startup?
by rocqua on Friday March 10, 2023 @10:25AM
(#35095511)
Treasuries and bonds drop in price when interest rates go up.
in 2021 (when interest rates were low) you might pay 100 cents on the dollar for a treasury that payed 2.5% interest.
In 2023, with interest rates much higher, you can no longer sell that treasury for 100 cents on the dollar. People can get much better returns by just buying recent treasury. So you need to sell your bonds lower, at say 95 cents on the dollar. That is an immediate 5% loss.
This is known as 'interest risk' and is really the only risk you have when buying safe bonds like treasuries. The risk is completely avoidable if you can hold your bonds to maturity, so it only matters in a liquidity crunch.
in 2021 (when interest rates were low) you might pay 100 cents on the dollar for a treasury that payed 2.5% interest. In 2023, with interest rates much higher, you can no longer sell that treasury for 100 cents on the dollar. People can get much better returns by just buying recent treasury. So you need to sell your bonds lower, at say 95 cents on the dollar. That is an immediate 5% loss.
This is known as 'interest risk' and is really the only risk you have when buying safe bonds like treasuries. The risk is completely avoidable if you can hold your bonds to maturity, so it only matters in a liquidity crunch.