Fixed Income, Broken Balance Sheets

The huge jump in interest rates over the past year has wreaked havoc in fixed-income portfolios throughout the country, and banks were not immune. They have plowed vast sums into securities over the past three years, and now many face unrealized losses worth hundreds of millions of dollars in their portfolios. Many institutions built up massive positions in mortgage-backed securities, which declined in price even more than Treasuries did. "This huge move in rates really surprised the banks," says Dennis F. Shea, an analyst at Morgan Stanley & Co.

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