“Anxiety Strikes $8 Trillion Mortgage-Debt Market After SVB Collapse”
March 21, 2023
“So-called agency mortgage bonds are widely held by banks, insurers and bond funds because they are backed by the mortgage loans from government-owned lenders Fannie Mae and Freddie Mac. The bonds are far less likely to default than most debt and are easy to buy and sell quickly, a crucial reason they were Silicon Valley Bank’s biggest investment before it foundered.
But agency mortgage-backed securities, like all long-term bonds, are vulnerable to rising interest rates, which pushed their prices down last year and saddled banks such as SVB SIVB 0.00%increase; green up pointing triangle with unrealized losses. Now that the Federal Deposit Insurance Corp. has taken over SVB, investors expect the bonds to be sold off in coming months, adding supply to the weakened market and pushing prices lower…
Signature Bank, which was taken over by regulators, and First Republic Bank, which is in stock-market free fall, own far less agency MBS than the roughly $78 billion SVB reported as of Dec. 31. The real worry is that a larger institution will tumble next… “