Article: The IMF warned about the risk to the bond market if the situation with the SVB bank repeats
Source: https://ru.investing.com/news/economy/article-2297982
Context:
Treasury bond yields have reached a peak not seen in almost 2 decades, amid one of the most extreme U.S. bond sales in history. Traditionally, when yields rise, bond prices fall, causing banking turmoil. In March, SVB Bank was forced to sell its bonds with heavy losses, which triggered an outflow of deposits and the collapse of this bank along with other creditors.
What is meant - in simple words
Lenders (US commercial banks) currently have a significant share in their asset portfolio in the form of US Treasury bonds. In other words, banks used to lend to the American government at a low rate, up to 2 percent. Today is the time for high rates on long-term US debt securities, due to tight monetary policy-the Fed's credit policy.
If at the moment there is a situation related to the fact that the main depositors of the American banking system will begin to withdraw their money from their liabilities (to take the money back), this may lead the latter to the need to sell off their assets on the market - stale long treasury debt securities (to ensure this return), but at a low price, because today the price for them is not 2%, as before, but about 6%.
It makes sense! - Well, why would anyone buy up the Fed's debts at a low rate, if today you can lend it at a rate 3 times higher.
Naturally, the amount that banks will be able to return will not be comparable with their original face value (how much it was when they were laid out in these papers), which may affect the fact that there is not enough money for everyone from all this property sold. And this is called bankruptcy of the banking system and possibly even on a large scale.
A similar situation was not so long ago with the well-known bank SVB, which then the US government pulled for &"ears" by turning on the printing press.
One can only guess - will American banks start to take out depositors or not?
The background to this is the same interest rate policy of the Fed and the American economy, which ensures the profitability and solvency of its citizens and businesses.