I don't want to turn this into another tutorial about pricing works on the bond market, but the issue isn't that they invested in bonds, it's that they made a bet about the Federal reserve reversing course and not hiking interest rates. This is really stupid - the federal reserve has been saying over and over again that they will not be lowering rates any time soon.
With that said, it's good they got punished for poor decisions given their depositor profile.
If it was a short period of time (a week?) this was going on, then sure. The emperor darting to the bathroom without his clothes on is unlikely to be a scandal after all.
But even if fed rates dropped tomorrow those bonds will not recover to par, because inflation on their principal amounts has already happened, and their interest rates are too low to ever recover back how much they have lost value barring truly exceptional deflation.
So unless they somehow come up with even more cash on hand to be able to avoid ever realizing those losses (good luck when everyone starts drawing down savings and boomers start retiring more and more), they’re boned inevitably.
Deflation wise, the fed will fight THAT even harder than the current inflation fight they are doing, and that’s relatively easy to combat - print more money. It’s why they’ve been printing money since ‘08.
Since the expectation is that inflation will continue for some time of course makes the math and present value even worse, but there is no plausible situation right now where the expected future dollar value of those bonds will be high enough to recoup a large percentage of their purchase value in today’s or a future dates currency.
That value is gone.
No, whether they are safe or not depends on what you are using them for.
If you have to mark them to market, they aren't safe investments. If you can hold them to maturity, they are safe investments.
Bonds have only ever been considered ‘safe’ from a repayment perspective (it’s the only thing they really get graded on risk wise), and even then junk bonds are a real thing. The value of the bond shrinking due to inflation is always a unquantifiable future risk that typically gets priced in price/interest wise by the buyer/underwriter - but with the fed suppressing rates? All bets are off.
Those who got those 2% mortgages though have a lot to be thankful for. As long as the zombie hordes don’t get them in the coming debt apocalypse anyway (/s).
