Hold or sell? High Treasury yields spur US banks to rethink bond portfolios
BAC•Rising Treasury yields are deepening unrealized losses on US banks’ bond portfolios, forcing lenders to weigh selling at a loss against holding bonds to maturity. Bank of America’s unrealized bond losses rose to $109 billion at September-end from $85 billion in June, while Fifth Third delayed a planned share repurchase.
1. Bond losses deepen
The industry’s accumulated other comprehensive income balance remained negative at $156.64 billion in the second quarter, according to S&P Global Market Intelligence data. The 10-year Treasury yield then recorded its sharpest quarterly rise since 1994 in the third quarter. Bank of America’s accumulated other comprehensive loss increased by more than $3 billion in the three months ended September 30; its unrealized bond losses reached $109 billion, up from $85 billion at June-end, with most securities held to maturity.
2. Choices carry costs
Selling bonds would lock in losses, while waiting could keep pressure on balance-sheet measures of financial strength and shareholder payouts. Investors and analysts said banks may consider selling and redeploying capital into higher-yielding assets, but losses on bond investments contributed to Silicon Valley Bank’s 2023 collapse when combined with rapid deposit withdrawals.
3. Buybacks under pressure
Fifth Third said it delayed a planned share repurchase in September after higher rates affected its accumulated other comprehensive income. Wells Fargo said future buybacks may partly depend on the impact of rates on its investments. Truist has been repositioning its securities portfolio and sees scope for further sales, while PNC said it is considering Basel III capital rules as it evaluates its holdings.
