Will rate hikes be tempered? And what about investor appetite as cap rates rise?
As 2022 began, the yield on 10-year Treasuries was 1.73%. Also referred to as T-bills, their going rate today is 3.4%.
Let’s say you were quite cautious, aka risk-averse, but wanted some return on your cash and bought a pile of these government issues. If you planned to redeem the bonds in 2030, no problem. The return would be there, along with your principal amount. This very over-simplified example is partially what caused Silicon Valley Bank to fail and be seized by federal regulators. When the run on deposits occurred last week, the bank was forced to take a loss on its bond portfolio in order to cash out investors.
We’ve now experienced a couple of months of strong job numbers paired with increasing wages and a resilient consumer who refuses to stop spending.
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