Analysis-Trump’s focus on US yields fuels bets on bank leverage rule review

By Investor Empires On Feb 15, 2025

By boldness of the beard

New York (Reuters)-The Trump administration has strengthened the long-term US Treasury revenue to the forecasts of the bond market that the long-awaited organizational transformation on bank lifting requirements may wave on the horizon.

Some merchants may soon focus on betting on the supplementary leverage percentage (SLR), a base that requires large American banks to keep an additional layer of excellent capital to lose against US government debts and central bank deposits.

A possible changing policy means that banks will not need to allocate the most additional money when they carry safe assets such as the cabinet.

Some investors and analysts said this may eventually help to push the treasury revenues in a decrease.

This expectation comes after US Treasury Secretary Scott Pessente said last week that the administration of President Donald Trump focused on containing treasury revenues for a period of 10 years, a building block from global financial markets and a standard for borrowing costs for consumers.

The White House and the Treasury did not immediately respond to suspension requests.

Ryan Omali, head of the governor’s administration at Ducenta Squared Asset Management, said the possible review of SLR will be positive for the treasury market and other debt assets, which will benefit from banks that liberate their public budgets.

“They will increase their request for the cabinet and other assets,” he said.

SLR was presented as part of the organizational efforts after the 2008 global financial crisis. However, over time, many participants in the Treasury Market see it as a major obstacle to banks that provide liquidity for traders, especially in times of increasing fluctuations.

The BPI, a commercial association representing large American banks, said in a modern paper that re -calibration of the ratio will be decisive in maintaining the performance of the market, especially given the possibility of increasing the issuance of government debts due to a budget deficit.

“We believe that the SLR changes can be made at a relative speed,” Francisco Kovas, CEO and head of research at BPI told Reuters in an interview.

Covas added, referring to the Federal Reserve, the Office of the Currency Observer Observer and the Federal Insurance Corporation, referring to the Federal Reserve, the Office of the Currency Monitoring Observer and the Federal Insurance Corporation in reference to the Federal Reserve, SLR should be near the highest capital of the capital of American organizations, he added Kovas, referring to the federal reserve, the currency observer office, and the federal deposit insurance company.

The spread of swap rates on the treasury yield has expanded in recent days, a sign that investors have begun to expect to review the base. The interest rates of the traders allow for the risk of interest rates by exchanging a floating rate of the fixed rate, or vice versa.

The swap differences, which have been deeply negative over the past few years, or become less negative – have expanded after BESSENT on the return of 10 years, and after the latter FED policy hints at SLR reviews.

The swap differences increased for 10 years and 30 years by about five and 10 basis points during the past week, reaching its widest since June 2024 and December 2023, respectively.

Treasury Ministry of Flexibility

In April 2020, the Federal Reserve has excluded treasury bonds and the deposits of the central bank from SLR to enhance liquidity, as Covid-19 epidemic has acquired investors. But he left this exclusion ending the following year.

The President of the Federal Reserve, Jerome Powell, told Congress this week that he was supporting the reducing percentage, saying that it would help the locker market liquidity. In a speech last week, the FBI ruler addressed the Fed “to take measures to address the unintended consequences for the regulation of banks.”

Travis Hill, Acting Chairman of the FDIC, said SLR in notes last month in which he called for a comprehensive reform of other US capital.

The renewed focus on SLR comes amid wider organizational efforts to improve liquidity in the treasury market.

One of the main reforms is a base adopted by the Securities and Stock Exchange in December 2023, which will force more deals through home clearing. It will be implemented in stages by June 2026, although the Wall Street associations have recently asked the organizers more time to implement them.

“In the light of the American Treasury storage … we want to make sure that SLR is not one of the areas that can hinder the ability of banks in the International Bath and Derivatives Association,” said Lisa Galita, head of the American exclusive risk.

However, SLR changes may have a marginal effect on reducing risk installments that investors demand, which affect returns, and can carry some risks, said Deutsche Bank in a recent note.

Analysts said: “By reducing the flexibility of the banking system, it increases the possibility of banking stress that requires a financial response.”

(Participated in the reports of David Barbosia; edited by Megan Davis and Nia Williams)