WTF does that mean?
>notionally hedged against
on paper, SVB had protection from...
>...interest-rate duration risk
the danger that rising interest rates would mean it lost money on long term bonds at the historic (low) rate...
>...by this hold-to-maturity strategy,
using a common financial technique that valued the assets in question at their final value, not their current market value...
>that strategy put those assets outside the circle of those available to meet unexpected withdrawals
however, doing so meant those bonds weren't available if they needed immediate cash
But of course, that ended up not being true, now was it? So it was only 'notionally' hedged, not truly hedged.
However, for _these_ bonds, and so much of it, to be declared "held to maturity" is a mistake. There's always wiggleroom in how accountants add up the numbers. They messed up on this part.
Should you look at the opportunity costs for lost potential gains in this scenario -- yeah. Does it "lose money" -- no, not unless you are forced to sell before maturity.
lost earnings are a wish for what could have been, not lost in reality.
> Even so, SVB knew it had gotten itself into trouble—that it had put too large a share of its assets into long-term Treasuries that it intended to hold-to-maturity, and that while it was notionally hedged against interest-rate duration risk by this hold-to-maturity strategy, that strategy put those assets outside the circle of those available to meet unexpected withdrawals, and so caused liquidity problems. SVB was, I am told by sources who really should know, because they talked to people talking to people doing the deal, that SVB came within twenty minutes of getting enough additional cash to fix likely problems.
> Then chaos monkey Peter Thiel showed up: advising companies to pull their money out of SVB.