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.

There were a number of reasons for the bank's collapse. Its depositor base was highly concentrated in tech companies and start-ups, many of whose bank accounts shrunk as the tech sector crashed in 2022. A failed stock sale sparked a panic among investors, leading to a bank run that ultimately crushed SVB. And another major reason was that Silicon Valley Bank ignored duration risk.

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.

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Source Fool.com