Monday, June 06, 2016

Why The Federal Reserve Is Trapped: 
A 1% Increase In Rates Would Result In 
Up To $2.4 Trillion Of Losses
Bloomberg & Zero Hedge articles & Goldman Sachs analysis highlight the math behind U.S. interest rates & how a 1% increase in interest rates would lead to trillions in losses .. Goldman concludes, even if there is not a large net social loss from a rise in rates, the $1 trillion gross loss estimate suggests that some investor entities would likely experience significant distress. In the 1994 bond market decline, for example, losses on a mortgage derivative portfolio were a major factor contributing to the Orange County, California bankruptcy event. All in, the increase in total gross debt exposure, combined with lengthening bond durations and an arguably expensive bond market, suggest that rising yields should be on the short list of scenarios to be monitored by risk managers - This ignores the losses that would also impact the Fed's own holdings of rates instruments.
LINK HERE to the article
LINK HERE to the related article

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