Creditors definitely do lose money when they price debt at 2% but inflation runs at 7%.
Talking about mortgages misses the larger fixed rate bond market (government and company long term debt).
Talking about mortgages misses the larger fixed rate bond market (government and company long term debt).
When we’re talking about institutions with billions of dollars (and not joe lending Bobby $20), I wouldn’t call them a loser unless they specifically failed to properly hedge their positions.
Hedging is done at the portfolio level using derivatives. This allows you to move your unwanted exposure to interest rate risk (or just about any kind of risk) to someone else in exchange for a premium. Whoever is taking that risk off your hands probably has a more diverse portfolio and wants the premium (ie their risk profile is different). In this manner, large fixed-rate creditors shouldn’t be largely exposed to rising interest rates, because they’ve been hedging that risk all along.