When bond yields rise, the value of existing bonds with lower yields decreases, creating unrealized losses on bank balance sheets; this occurred after the 2020 pandemic when banks purchased low-yielding Treasury bonds (around 1%) that became significantly less valuable as yields increased to approximately 5%, potentially triggering banking sector stress.
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Why Rising Bond Yields Could Trigger a Banking Crisis #shortsAñadido:
Back in 2020, when we got hit with COVID, the government needed to issue a ton of debt to fund that money printing, to fund that spending. And the banks bought all this debt, these bonds that were yielding around 1%. Now with treasury bonds yielding up around 5%, those bonds that the banks bought are worth a lot less. They're basically a trash asset that's on their balance sheet that they can't sell.
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