Let’s Speculate For Fun (Not)

A regional bank run wasn’t my #1 candidate for the ripple effects of higher interest rates.

My #1 candidate is over-leveraged pension fund managers aboard, who hedged their foreign exchange exposure. Last year, long-dated GBP bonds dropped by 17% in a day. Working backwards, the only way this could’ve happened is that a forced seller appeared due to the market value of off-balance sheet agreements. Those agreements were ‘necessary’ to fulfill long-dated obligations. There is no central bank that can implement a fix to this, because foreign exchange volatility will force the owner of the ‘rare book’ at any price, at a time that there will be no buyers, and no mechanism (Fed / Treasury) to fix it, since every country will be acting in its self-interest.