CDS traders are sending default swaps on the big US BANKS sharply wider - Deutsche Bank believes the rise in yields could propel Banks' Unrealized losses $140 Billion higher to a record $700 Billion. DB strategist Zeng warns the Q3 explosion in rates has no doubt widened the unrealized losses in US #banks #bond portfolios, which was already the catalyst for multiple bank failures this year at a time when #rates blew out to far more normal levels. To quantify the threat, Zeng attempts a basic estimate of the impact higher rates have had on banks' securities portfolios using available FDIC statistics. The calculations are based on a the fact that 10Y yields rose by over 70 bps during this quarter and that during Q2, US banks held $5.436 trillion in debt securities, primarily in agency mortgages and Treasuries. Simply assuming a key rate duration of 3.5 for the 10y point, these securities would have lost $140bn in value during the quarter, if all else unchanged. And with banks holding cumulative unrealized losses of $558.4bn in Q2, the estimated increase of around $140 billion would widen their unrealized losses to a new record, surpassing the previous peak of $689.9bn in Q3 2022, and potentially rising above $700 billion! As Zeng concludes his report, while systemic solvency risks are low, lower securities valuations could weigh on banks' capital adequacy ratios, potentially reducing their willingness to lend and slowing the flow of credit in the economy.