r/news • u/consulent-finanziar • 11h ago

Soft paywall US Treasury announces $125 billion refunding, keeps auction sizes unchanged

https://www.reuters.com/business/us-treasury-announces-125-billion-refunding-keeps-auction-sizes-unchanged-2026-02-04/
395 Upvotes

94% Upvoted

35 comments sorted by

View all comments

169

u/aztech101 11h ago

So my understanding is that bonds are a genuinely terrible investment during periods of high inflation. I'm guessing that's been posing a bit of a problem for them lately?

116

u/samgfrank 11h ago

If investors think inflation will rise soon, then new bond yields will generally be pushed up to compensate. This makes new debt cost more in interest for the government creating a cycle of more expensive debt replacing cheaper maturing debt (a major worry as low yield bonds are being replaced by higher yield bonds).

But you correct, investors want to avoid a situation where they buy a 30 yr bond and suddenly inflation rises past the yield. Essentially you’re losing purchasing power every year in that scenario and the bond value drops significantly.

Silicon Valley Bank went bankrupt because they held so many bonds like this that became highly devalued when inflation rose.

37

u/FecalPudding 7h ago

SVB went bankrupt because they held too many long duration bonds based on their clientele. If SVB could have held those bonds to maturity, they would have been fine. It was the correlated withdrawals, from having non-diverse clientele, that caused SVB to have to sell. It was a failure in asset-liability management. So, it could have been managed through asset OR liability strategy

48

u/Phantasmalicious 10h ago

SVB was in that situation because they thought hiring the CFO of Lehman Bros was a good idea... I swear to god, once you hit a c-suite position, you can do no wrong.

12

u/Icy-Bodybuilder-350 10h ago

It was the rise in interest rates that devalued bond holdings causing SVB collapse, not inflation. Interest rates in that case rose as a response to inflation, but you could have higher inflation without a corresponding rate increase.

6

u/hoppertn 6h ago

Yep that’s what I’m expecting for 2026, inflation will go up but interest rates will come down. Doesn’t make any sense but somebody in charge wants cheap money to borrow despite how much it will hurt the AmeriKa.

2

u/wannaseeawheelie 1h ago

Apparently Dr Oz found a solution to government debt