Markets expert Larry McDonald says the 40% drop in Apple’s bonds points to a problem on the balance sheets of banks with large holdings of debt.

Markets expert Larry McDonald says the 40% drop in Apple's bonds points to a problem on the balance sheets of banks with large holdings of debt.
Larry McDonald

Larry McDonald.Larry MacDonald/Bear Traps Report

  • The 40% drop in Apple bonds highlights the risks facing banks’ debt portfolios, according to Larry McDonald.

  • The market expert highlighted the risks associated with mortgage-backed securities, which are on track for their third annual decline.

  • The collapse of the Silicon Valley bank last March, which sparked a wave of banking turmoil, was caused by losses in its bond portfolio.

Apple’s long-term bonds have lost 40% of their value since late 2020 thanks to the Fed’s interest rate increases, and this highlights the increased risks banks face from their debt holdings, according to Larry MacDonald.

price Apple’s debt is 2.55% due in 2060 It fell to around $61.80 from $100.59 at the end of 2020. The bulk of the declines have come since early 2022, when the US central bank began raising interest rates to suppress inflation. The Fed has raised its benchmark interest rate by more than 500 basis points since then.

Bonds that pay a fixed coupon rate become less attractive to investors as interest rates rise in the market, causing the price of these securities to fall. Earlier this year, the shocking collapse of a Silicon Valley bank triggered by huge losses stemming from its Treasury portfolio, sent a wave of turmoil across the global banking system.

“Higher interest rates — lower bond prices. $1 million invested in this Apple AAPL note is now worth $600,000, term risk on stage here. Now think of all those mortgage-backed securities on the banks’ balance sheets,” “Bear” “trap report,” the founder said on Wednesday Post on X.

Mortgage-backed securities, or MBS, which are homebuyer loans repackaged into bonds, have also seen sharp declines in recent years. Black Rock iShares MBS Exchange Traded Fund It has lost more than 18% of its value since it peaked in 2020.

MacDonald seems to be indicating that if the bonds of higher-rated companies like Apple take such a hit from rising interest rates, the declines in the broader debt market could be significant.

MBS securities are closely related to mortgage rates. The average 30-year mortgage interest rate in the United States rose to a 23-year high of about 7.5% this month, indicating the magnitude of price displacement in the mortgage debt market.

According to the Federal Reserve Bank of Atlanta Monitor the affordability of home ownershipThe affordability of homes in the United States has sunk Lower levels than before the 2008 subprime mortgage crisis.

Read the original article at Business interested

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