[Zetice]

I honestly have no clue how to even research alternatives to the 10 year T note as an investment vehicle for SVB, but plenty of gigantic funds seem to be able to do all kinds of riskier investing so it doesn't seem like a fair question. There are tons of places to put money that are riskier, even billions, that would have yielded better returns.

30 year T notes, for example, seem to have been at double the 10 year notes in return at this time. Why not go for those if we're assuming greed as the driving factor here?

[oivey]

They aren’t a fund. They’re a bank. The alternative is exactly what GP just told you: a portfolio of bonds with varying maturity dates. Varying maturity dates reduces your risk in the case where you need to sell to get cash immediately because if interest rates go up, then you may have to sell at a loss. You may have to sell at a loss because it may be more profitable to buy a new bond than sit on your low interest bond, so you have to reduce the price of your bad bond to compete.

It really does seem like a ludicrous bet to be so invested in long term bonds at a moment of historically low interest rates. That’s why it reads like greed. SVB seemingly did very little to reduce the risk on that absurd bet.

[Zetice]

I still don't get why not 30 yr notes, though, if this really was just greed.

[mrguyorama]

Maybe the people who were stupid enough to lock up over half their balance sheet for ten years were smart enough to not do it for 30? Most financial people who take a stupid risk to chase yield don't think they are taking a stupid risk. They, through self delusion or other means, convince themselves it is a sure bet.

[kgwgk]

>> literally the only thing they could think of to do with the massive amount of money getting dumped in their lap

> There are tons of places to put money that are riskier, even billions, that would have yielded better returns

That there were many riskier alternatives doesn’t mean that there were no safer alternatives. (And by the way most of the riskier alternatives wouldn’t have actually yielded better returns in the last couple of years.)

[Zetice]

But it does mean that greed doesn't explain everything, which is my point.

[kgwgk]

If you don't think that the explanation for those investments into higher-risk higher-yield longer-term treasury bonds instead of, for example, lower-risk lower-yield shorter-term treasury bonds is that the yield was higher, what could it be?

Speculation that interest rates would go down and longer duration bonds would appreciate more?

Avoiding the hassle of managing a short-term portfolio to have more free time?

Taking risk for the sake of thrills?

[Zetice]

I don’t know! I’m asking here because it’s not clear to me what their thinking was, but none of the explanations people here are giving really make me feel like I understand. Is the argument that they were a very narrow set of greedy? Why not just a not narrow set of stupid?

[_Tev]

Greed (or any "wrong" mindset really) is not black and white. You can be "a little too greedy" or "a lot greedy".

Your example from other comment with 30y maturities is actually nice example - that would be "way more greedy".

Basically as long as your bet on higher yields and bigger risks does cause your bank to fail, you were too greedy.

I am not an expert, but the explanations given make sense to me.