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(Un)Marked to market

Interest rate risk continues to put pressure on banks and governments. Bond portfolios in banks, not only in the US but globally, have losses that have not been marked to market. As you can see below, the U.S. banking system is seated on $675Bn of losses. Although they may not be permanent impairments, and can be corrected over time as bonds mature and interest rates rise, they don’t allow banks to conduct business as usual. They limit their ability to buy more bonds, or pay more interest on their deposits. This phenomenon is not only present in private banks; central banks share the same problem, accentuated by the fact that their balance sheets are much bigger. Only the bank of Japan, has $72Bn unrealized loss on its bond portfolio and The Fed may have losses for more than $1tn. It will take time and lower rates to erase those losses and go back to normal.


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