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An interest rates-focused trading desk at Goldman Sachs (NYSE:GS) suffered a ~$200M loss in the week following the twin failures of Silicon Valley Bank and Signature Bank, the Financial Times reported, citing people familiar with the matter.
The demise of both lenders prompted speculation about how much further the Federal Reserve can jack up interest rates and hence drove investors to flock to government-backed bonds.
Before the collapses roiled financial markets, investors had penciled in a 50 basis-point rate increase at the March 21-22 meeting. But recent concerns over financial stability have led them to price in less aggressive monetary tightening, calling for either a 25-bp move or no hike.
This past week’s price action among Treasury bonds was one for the books, as the yield on the two-year T-note (US2Y) dropped at its fastest pace since 1987.
Hedge funds that had capitalized on wagering on a further hawkish Fed have been hit hard as well, including Systematica Investments’ Schroder Gaia Bluetrend fund, which fell by 10% this month through Monday, the FT noted.
In January, Reuters reported that the asset management arm of Goldman Sachs (GS) will pare back the $59B of alternative investments that contributed to lower 2022 earnings.
