This is not a typical liquidity squeeze. The scenario you are talking about is where liquidating some assets all at once would crash the market and so to capture the value a sale needs to be made over time.
The treasury and agency mbs markets are plenty deep enough to handle this liquidation. The issue is that the value of the holdings have dropped. That’s a solvency issue.
I’m boldly assuming that interest rates will change in the future. There’s no denying that SVB have fucked up, but equally it’s possible they would have survived if a bank run hadn’t occurred, and they had sufficient time to unwind their bonds, and raise needed capital to cover their inevitable losses.
Or maybe they would have managed to limp on long enough for interest rates to drop just low enough for their bonds to recover enough value to be sold without bank ending losses.
But who knows. There was a bank run, facilitated by VCs, which ironically, is now going to really hurt the very VCs that fanned the flames. Now we get to see how SVB gets unwound, who gets fucked, and who ends up picking up the tab.
The treasury and agency mbs markets are plenty deep enough to handle this liquidation. The issue is that the value of the holdings have dropped. That’s a solvency issue.