Make Kitco Your Homepage

Banks loan growth focus could impact U.S. Treasuries - Credit Suisse

Kitco News

NEW YORK, Jan 20 (Reuters) - U.S. banks' appetite for U.S Treasuries could slow down as they shift their focus to loan growth, at the same time that the Federal Reserve plans to shrink asset holdings and raise interest rates to fight inflation, said Credit Suisse analyst Zoltan Pozsar.

Asset purchases by the Fed contributed to unprecedented liquidity and trading activity through the pandemic, but trading revenue at leading Wall Street banks fell in the fourth quarter as markets normalized and the U.S. central bank started scaling back its asset purchases, which resulted in lower trading volumes. read more

Bank of America (BAC.N) on Wednesday reported a better-than-expected 30% jump in quarterly profit, partly driven by $50 billion in record loan growth. read more

JPMorgan (JPM.N) posted a 6% increase in loan growth last week, while its trading revenues declined, and Goldman Sachs (GS.N) on Wednesday missed quarterly profit expectations, hit by weaker trading revenues. read more

"Our view that bank portfolios will easily absorb U.S. Treasury issuance amid plenty of excess liquidity and slow loan growth is changing now that loan growth is back and QT is approaching", Pozsar said in a report on Wednesday.

Pozsar was referring to "quantitative tightening," a reversal of the Fed's bond-buying stimulus.

Less demand for long-term U.S Treasuries could put further pressure on yields that have jumped this month as investors adjusted to expectations that the Fed will tighten monetary policy more aggressively to counter unabated inflation.

"We are now at a stage where banks are more interested in making loans than buying securities – and that should have the back end of the Treasury market concerned", Pozsar said.

Rate hikes, and therefore more expensive money, are expected to boost banks' margins as lending rates tend to rise faster than short-term ones banks use to borrow.

Bank executives and analysts have said Wall Street banks expect trading revenues to settle somewhere between pre-pandemic levels and the highs of the past two years.

Reporting by Davide Barbuscia; editing by Jonathan Oatis
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.