Unrealized Gain/Loss on Investment Securities
Paper Gains or Losses on Securities Not Yet Sold
Unrealized Gain/Loss on Investment Securities is the change in fair value of debt or equity securities that a company still holds at the end of the period. These are 'paper' gains or losses—nothing is locked in until the security is sold. Depending on classification, they either flow through net income or sit in other comprehensive income (OCI) until realized.
Why Unrealized Gains/Losses Happen
When you mark securities to market each period, their value shifts with interest rates, credit quality, or stock prices—even if you haven't sold.
A bond's price falls when rates rise (and vice versa). Stocks fluctuate daily. These moves create unrealized gains or losses until you cash out.
Accounting rules decide where they land: straight to earnings (trading/FVTPL) or parked in OCI (AFS/FVOCI debt).
A Real Example to Make It Click
Bank buys $100M corporate bonds at par yielding 4%.
- Rates drop → bond value rises to $108M
- Unrealized gain: +$8M
- If trading/FVTPL → +$8M boosts net income this year
- If AFS/FVOCI → +$8M to OCI (equity), no earnings hit until sold
- Rates rise next year → value falls to $95M → $13M unrealized loss reverses prior gain
Trading classification = volatile earnings. AFS = smoother income, bumpier equity.
Where They Hit the Statements
Trading or FVTPL Securities
- Fair value changes → income statement
- Often 'Other gains/losses' or 'Investment income'
Available-for-Sale / FVOCI Debt
- Fair value changes → OCI
- Recycled to P&L on sale
- Impairment or credit loss → immediate expense
Held-to-Maturity
- No unrealized—amortized cost only
Equity investments (US GAAP): mostly P&L now; IFRS FVOCI election keeps in OCI.
Common Drivers of Swings
- Interest rate moves (biggest for bonds)
- Credit spread changes (riskier issuers)
- Equity market volatility
- Currency fluctuations (foreign securities)
- Sector or company-specific news
Who Feels It Most
- Banks (large bond portfolios)
- Insurance companies (long-duration assets)
- Investment funds
- Corporates with treasury portfolios
Trading desks love the volatility for profit; conservative holders prefer HTM or OCI to avoid earnings noise.
What to Watch For
- Classification choice (earnings volatility vs. smoothness)
- Size relative to equity (OCI can swing book value)
- Interest rate sensitivity (duration matters)
- Recycling impact on future earnings
- Impairment signals (credit deterioration)
Large unrealized losses in OCI can hide from earnings but hit equity hard.
Key Takeaways
Unrealized gains/losses are market-driven value changes on unsold securities.
Trading/FVTPL → immediate earnings impact.
AFS/FVOCI debt → OCI buffer (recycled later).
HTM → no unrealized volatility.
Reflect interest rate, credit, and market risk.
Classification choice drives earnings vs. equity volatility.
Unrealized Gain/Loss on Investment Securities
Paper Gains or Losses on Securities Not Yet Sold
Unrealized Gain/Loss on Investment Securities is the change in fair value of debt or equity securities that a company still holds at the end of the period. These are 'paper' gains or losses—nothing is locked in until the security is sold. Depending on classification, they either flow through net income or sit in other comprehensive income (OCI) until realized.
Table of Contents
Why Unrealized Gains/Losses Happen
When you mark securities to market each period, their value shifts with interest rates, credit quality, or stock prices—even if you haven't sold.
A bond's price falls when rates rise (and vice versa). Stocks fluctuate daily. These moves create unrealized gains or losses until you cash out.
Accounting rules decide where they land: straight to earnings (trading/FVTPL) or parked in OCI (AFS/FVOCI debt).
A Real Example to Make It Click
Bank buys $100M corporate bonds at par yielding 4%.
- Rates drop → bond value rises to $108M
- Unrealized gain: +$8M
- If trading/FVTPL → +$8M boosts net income this year
- If AFS/FVOCI → +$8M to OCI (equity), no earnings hit until sold
- Rates rise next year → value falls to $95M → $13M unrealized loss reverses prior gain
Trading classification = volatile earnings. AFS = smoother income, bumpier equity.
Where They Hit the Statements
Trading or FVTPL Securities
- Fair value changes → income statement
- Often 'Other gains/losses' or 'Investment income'
Available-for-Sale / FVOCI Debt
- Fair value changes → OCI
- Recycled to P&L on sale
- Impairment or credit loss → immediate expense
Held-to-Maturity
- No unrealized—amortized cost only
Equity investments (US GAAP): mostly P&L now; IFRS FVOCI election keeps in OCI.
Common Drivers of Swings
- Interest rate moves (biggest for bonds)
- Credit spread changes (riskier issuers)
- Equity market volatility
- Currency fluctuations (foreign securities)
- Sector or company-specific news
Who Feels It Most
- Banks (large bond portfolios)
- Insurance companies (long-duration assets)
- Investment funds
- Corporates with treasury portfolios
Trading desks love the volatility for profit; conservative holders prefer HTM or OCI to avoid earnings noise.
What to Watch For
- Classification choice (earnings volatility vs. smoothness)
- Size relative to equity (OCI can swing book value)
- Interest rate sensitivity (duration matters)
- Recycling impact on future earnings
- Impairment signals (credit deterioration)
Large unrealized losses in OCI can hide from earnings but hit equity hard.
Key Takeaways
Unrealized gains/losses are market-driven value changes on unsold securities.
Trading/FVTPL → immediate earnings impact.
AFS/FVOCI debt → OCI buffer (recycled later).
HTM → no unrealized volatility.
Reflect interest rate, credit, and market risk.
Classification choice drives earnings vs. equity volatility.
Related Terms
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