Why Is Everyone Talking About Duration Risk?

Duration might be an abstract concept for most investors, but it became very real earlier this month when Silicon Valley Bank, part of SVB Financial, collapsed, becoming the second-biggest bank failure in U.S. history. The bank received a windfall of new deposits during the early stages of the pandemic, and it took that money and invested it in long-duration fixed-income assets like Treasury bonds and mortgage-backed securities. The problem with that strategy was that the price of those bonds plunged as interest rates spiked over the past year.