Long-term bond purchases and the subsequent increase in interest rates short- circuited Silicon Valley Bank.
Who else might have bought them?
In a report (March 2020) by the Congressional Budget Office, treasury bonds (the long-term ones) represented 14% of the total US government debt outstanding. The report goes on to state that major holders of treasury securities include mutual funds, financial institutions, pension, and retirement funds.
We will know who else owns the long bonds when information starts showing up in footnotes to pension plans, retirement funds, insurance companies, and mutual funds who made the same mistake as SVB.
Foreign holdings represented around 34% of the total US government debt held by the public. Countries with the largest holdings were Japan, China, UK, Brazil, and Ireland.
If long-term bonds are part of a balanced portfolio, where they are less than 10 -15% of total investments, owners will be fine. Balanced means that there are not excessive concentrations in any one debtor, industry, maturity, region. Balance is key for life and investing.
One place where balance is not required is entrepreneurship. Entrepreneurs have to be willing to bet everything on themselves. When you are an entrepreneur, you need to be 120% engaged in what you’re doing. When we look at funding situations, and the entrepreneur says they don’t want to personally stand behind their business loan, TABASFUNDING is out of there. Maybe an entrepreneur doesn’t have a lot, but if they are willing to put it all on the line in pursuit of their goals, that says something.
If you have an entrepreneurial funding situation, please talk to us.
Lee Tabas, President, TABASFUNDING, consultant, former President, Royal Bank of Pennsylvania, Graduate, American Bankers Association School of Banking.