9 October 2023
The 10Y yield spike might lead US banks to incur approximately $140 billion in unrealized debt losses, given their duration exposure of $5.4 trillion at the end of Q2. This would push total cumulative losses to an alarming $700 billion, possibly prompting the Fed to extend its bailout facility. Additionally, the broader fixed income investor community faces significant risk from the rising yields. With these assets often serving as “ultra-safe” collateral in the global repo market, the situation could ignite massive margin calls, threatening financial stability.