Ways to Hedge Interest Rate Risk With Options
Ways to Hedge Interest Rate Risk
Managers at SVB did not expect rates to keep going up, they purchased long term bonds in early 2022 when interest rates were much lower than they became by the spring of 2023. The value of their bonds plummeted as rates went up which, in turn, effectively reduced their reserves. When there was a run on the bank SVB collapsed. There were ways to hedge interest rate risk which SVB did not take advantage of.