{"id":523057,"date":"2023-03-14T17:00:52","date_gmt":"2023-03-14T17:00:52","guid":{"rendered":"https:\/\/wncen.com\/?p=523057"},"modified":"2024-06-11T07:31:46","modified_gmt":"2024-06-11T07:31:46","slug":"the-us-fed-is-sitting-on-a-1-2-trillion-loss-on-its-bond-portfolio","status":"publish","type":"post","link":"https:\/\/wncen.com\/news\/the-us-fed-is-sitting-on-a-1-2-trillion-loss-on-its-bond-portfolio\/","title":{"rendered":"The US Fed is Sitting On A $1.2 Trillion Loss On Its Bond Portfolio"},"content":{"rendered":"<p><span data-preserver-spaces=\"true\">The United States Federal Reserve (Fed) is\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.federalreserve.gov\/publications\/files\/quarterly-report-20221129.pdf\" target=\"_blank\" rel=\"noopener nofollow\"><span data-preserver-spaces=\"true\">sitting<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0on a $1.2 trillion loss on its $8.3 trillion bond portfolio.<\/span><\/p>\n<h2><span data-preserver-spaces=\"true\">Is The FED Failing?<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">Out of their bond portfolio, the United States central bank is losing money by paying commercial banks via reverse repurchase agreements, popularly known as reverse repos or RRPs.\u00a0<\/span><\/p>\n<blockquote class=\"twitter-tweet\" data-width=\"500\" data-dnt=\"true\">\n<p lang=\"en\" dir=\"ltr\">If you thought SVB was bad &#8230; The Fed is sitting on unrealized losses of ~$1.2 trillion on their $8.3 trillion bond portfolio.<\/p>\n<p>And the Fed is losing money every day by paying $$$ to commercial banks via reverse repos. <a href=\"https:\/\/t.co\/qBMTq7mR3E\" rel=\"nofollow\">pic.twitter.com\/qBMTq7mR3E<\/a><\/p>\n<p>&mdash; Wall Street Silver (@WallStreetSilv) <a href=\"https:\/\/twitter.com\/WallStreetSilv\/status\/86995969?ref_src=twsrc%5Etfw\" rel=\"nofollow\">March 13, 2023<\/a><\/p><\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p><span data-preserver-spaces=\"true\">Reverse repos are\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.newyorkfed.org\/markets\/rrp_faq\" target=\"_blank\" rel=\"noopener nofollow\"><span data-preserver-spaces=\"true\">agreements<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0where the central bank, in this case, the Fed, sells securities, that is, government bonds, to commercial banks and agrees to repurchase them later at a higher price. This allows the Fed to inject liquidity into the market, but this has been coming at a higher cost due to high-interest rates.<\/span><\/p>\n<div class=\"related-reading-shortcode\">Related Reading: <a href=\"https:\/\/wncen.com\/news\/usdc-feeling-intense-pressure-despite-fed-action-to-halt-svb-contagion\/\">USDC Feeling Intense Pressure Despite Fed Action To Halt SVB Contagion<\/a><\/div>\n<p><span data-preserver-spaces=\"true\">With news showing that the central bank is hemorrhaging funds after a shift in its monetary policy, there is a growing\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.sovereignman.com\/trends\/if-svb-is-insolvent-so-is-everyone-else-146244\/\" target=\"_blank\" rel=\"noopener nofollow\"><span data-preserver-spaces=\"true\">concern<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0among investors and financial experts.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">The Fed&#8217;s bond portfolio is part of its quantitative easing program following the 2008-2009 global financial crisis. The idea was for the Fed to buy government and mortgage-backed securities (MBS) to keep interest rates low and stimulate economic growth. This worked to some extent, but the downside is that the Fed is now sitting on many bonds that are losing value on rising fund rates.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Their loss appears worse following the collapse of banks like Silicon Valley Bank that use customer deposits to buy government securities. When customers request their money back, the banks must sell the bonds at a discount, causing losses. To make depositors of SVB whole, the US government has to step in to acquire such bonds at face value (reverse repo), which means that the Fed ends up holding these bonds and their losses.<\/span><\/p>\n<p>Related Reading: <a href=\"https:\/\/wncen.com\/news\/bitcoin\/bitcoin-bulls-gain-strength-but-is-the-fed-really-forced-to-pivot\/\">Bitcoin Bulls Gain Strength, But Is The Fed Really Forced To Pivot?<\/a><\/p>\n<p><span data-preserver-spaces=\"true\">The situation has raised concerns about the effectiveness of the Fed&#8217;s monetary policy and the impact of government intervention in the financial markets. Critics have pointed out the moral hazards behind providing bailouts to failing institutions, which encourages risky behavior and can lead to a lack of financial discipline.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">The founder of hedge fund Citadel, Ken Griffin, has\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.ft.com\/content\/aeb9ef58-6fc1-45af-88b2-b46a2a532b3f\" target=\"_blank\" rel=\"noopener nofollow\"><span data-preserver-spaces=\"true\">criticized<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0the government&#8217;s decision to bail out depositors of Silicon Valley Bank, saying it shows that American capitalism is &#8220;breaking down before our eyes.&#8221; He believes there has been a loss of financial discipline and that the government should not have intervened to protect all depositors, even those with balances above the federal insurance limit.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">At the back of this, Bitcoin prices are rallying, reaching new Q1 2023 highs above $26,000.<\/span><\/p>\n<figure style=\"width: 1280px\" class=\"wp-caption alignnone\"><img loading=\"lazy\" decoding=\"async\" class=\"size-full\" src=\"https:\/\/www.tradingview.com\/x\/DIOovITm\/\" alt=\"Bitcoin Price On March 14| Source: BTCUSDT On Binance, TradingView\" width=\"1280\" height=\"595\"><figcaption class=\"wp-caption-text\">Bitcoin Price On March 14| Source: <a href=\"https:\/\/www.tradingview.com\/x\/DIOovITm\/\" target=\"_blank\" rel=\"noopener nofollow\">BTCUSDT On Binance, TradingView<\/a><\/figcaption><\/figure>\n<h2><strong><span data-preserver-spaces=\"true\">Will There Be A Resolution?<\/span><\/strong><\/h2>\n<p><span data-preserver-spaces=\"true\">Some experts argue that the Fed&#8217;s bond portfolio situation is not as dire as it seems. Bonds are typically held to maturity, which means that unrealized gains or losses disappear when the bonds are redeemed. <\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Therefore, the losses only matter if the Fed needs to sell the bonds for liquidity. Thus, like any bondholder, the Fed is losing to inflation more than anything else because they have to hold to maturity.<\/span><\/p>\n<div class=\"disclaimer-shortcode\">\n<p>Feature Image From Federal Reserve, Chart From TradingView<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>The United States Federal Reserve (Fed) is\u00a0sitting\u00a0on a $1.2 trillion loss on its $8.3 trillion bond portfolio. Is The FED Failing? Out of their bond portfolio, the United States central bank is losing money by paying commercial banks via reverse repurchase agreements, popularly known as reverse repos or RRPs.\u00a0 If you thought SVB was bad &#8230; The Fed is sitting on unrealized losses of ~$1.2 trillion on their $8.3 trillion bond portfolio. And the Fed is losing money every day by paying $$$ to commercial banks via reverse repos. pic.twitter.com\/qBMTq7mR3E &mdash; Wall Street Silver (@WallStreetSilv) March 13, 2023 Reverse repos are\u00a0agreements\u00a0where the central bank, in this case, the Fed, sells securities, that is, government bonds, to commercial banks and agrees to repurchase them later at a higher price. This allows the Fed to inject liquidity into the market, but this has been coming at a higher cost due to high-interest rates. Related Reading: USDC Feeling Intense Pressure Despite Fed Action To Halt SVB Contagion With news showing that the central bank is hemorrhaging funds after a shift in its monetary policy, there is a growing\u00a0concern\u00a0among investors and financial experts.\u00a0 The Fed&#8217;s bond portfolio is part of its quantitative easing program following the 2008-2009 global financial crisis. The idea was for the Fed to buy government and mortgage-backed securities (MBS) to keep interest rates low and stimulate economic growth. This worked to some extent, but the downside is that the Fed is now sitting on many bonds that are losing value on rising fund rates. Their loss appears worse following the collapse of banks like Silicon Valley Bank that use customer deposits to buy government securities. When customers request their money back, the banks must sell the bonds at a discount, causing losses. To make depositors of SVB whole, the US government has to step in to acquire such bonds at face value (reverse repo), which means that the Fed ends up holding these bonds and their losses. Related Reading: Bitcoin Bulls Gain Strength, But Is The Fed Really Forced To Pivot? The situation has raised concerns about the effectiveness of the Fed&#8217;s monetary policy and the impact of government intervention in the financial markets. Critics have pointed out the moral hazards behind providing bailouts to failing institutions, which encourages risky behavior and can lead to a lack of financial discipline.\u00a0 The founder of hedge fund Citadel, Ken Griffin, has\u00a0criticized\u00a0the government&#8217;s decision to bail out depositors of Silicon Valley Bank, saying it shows that American capitalism is &#8220;breaking down before our eyes.&#8221; He believes there has been a loss of financial discipline and that the government should not have intervened to protect all depositors, even those with balances above the federal insurance limit. At the back of this, Bitcoin prices are rallying, reaching new Q1 2023 highs above $26,000. Will There Be A Resolution? Some experts argue that the Fed&#8217;s bond portfolio situation is not as dire as it seems. Bonds are typically held to maturity, which means that unrealized gains or losses disappear when the bonds are redeemed. Therefore, the losses only matter if the Fed needs to sell the bonds for liquidity. Thus, like any bondholder, the Fed is losing to inflation more than anything else because they have to hold to maturity. Feature Image From Federal Reserve, Chart From TradingView<\/p>\n","protected":false},"author":384,"featured_media":523058,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[83386,3],"tags":[428,8768,2007,7918,87970,87987],"class_list":["post-523057","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-crypto","category-news","tag-bitcoin","tag-bonds","tag-fed","tag-federal-reserve","tag-silicon-valley-bank","tag-treasuries"],"acf":[],"yoast_head":"\n<title>The US Fed is Sitting On A $1.2 Trillion Loss On Its Bond Portfolio<\/title>\n<meta name=\"description\" content=\"The United States Federal Reserve (Fed) is\u00a0sitting\u00a0on a $1.2 trillion loss on its $8.3 trillion bond portfolio.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, 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His specialization in NFTs, blockchain, DeFi, and blockchain news for NewsBTC, combined with a background in mechanical engineering and over a decade of experience in journalism, has allowed him to craft over 10,000 news and feature articles over the past eight years. His diverse range of topics, including technology, Forex, and finance, reflects his comprehensive understanding of the crypto landscape. His technical expertise and analytical skills have been recognized and featured by leading news outlets such as Investing.com, CoinTelegraph, Entrepreneur, Forbes, and other authority sites. Notably, he broke key news, including the Ripple and MoneyGram partnership, cementing his position as a thought leader in crypto. The news exploded. Over 100,000 people devoured this meticulously crafted report, from seasoned investors to curious newcomers. His analysis wasn't just dry facts and figures; it crackled with insight, dissecting the implications of the partnership and its potential impact on the future of finance. His deep understanding of the financial markets, technological advancements, and blockchain developments has made him a respected voice in the industry. Dalmas is also the founder of BTC-Pulse, a crypto news site, further demonstrating his commitment to the field. He firmly believes that DeFi and NFTs are here to stay and will continue to drive financial inclusion. Coming from Nairobi, Kenya, it is easy to see the source of his inspiration: Across Africa, millions lack access to traditional banks. Remote villages, limited documentation, and high minimum balances create insurmountable barriers. DeFi, not just Maker or Aave, for example, but think of Bitcoin and USDT, cuts out the middleman. Forget banks with their limitations. Even so, DeFi isn't a magic solution. The continent still struggles with reliable internet access, and educational campaigns highlighting the benefits of this wonderful solution are insufficient. Moreover, even for those interested, understanding DeFi can look like learning a new language. Dalmas is here to help make the tech easy to understand and digestible, even for beginners. The story of DeFi in Africa is still being written. Challenges abound, but the promise of a more inclusive financial future is a powerful motivator. With innovation and collaboration, Dalmas firmly believes that DeFi could become the key to unlocking Africa's full economic potential. This possibility and its immense value motivate Dalmas to continue breaking key DeFi innovations and more across the globe. His engineering background further enhances his ability to deliver well-thought-out pieces that blend technical insight with clear, impactful reporting. 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