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

Banks loan growth focus could impact U.S. Treasuries - Credit Suisse
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NEW YORK (Reuters) – US banks’ appetite for US Treasuries may slow as they shift their focus to loan growth, at the same time the Federal Reserve plans to reduce asset holdings and raise interest rates to fight inflation. Credit Suisse analyst Zoltan Bozar.

Asset purchases by the Federal Reserve contributed to unprecedented liquidity and business activity through the pandemic, but trading returns at leading Wall Street banks fell in the fourth quarter as markets returned to normal and the US central bank began to reduce its asset purchases, which led to lower trading volumes. . Read more

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

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JPMorgan (JPM.N) posted a 6% increase in loan growth last week, while its trading returns fell, and Goldman Sachs (GS.N) on Wednesday lost its quarterly earnings forecast, weighed down by weak trading returns. Read more

“Our view that bank portfolios will easily absorb US Treasury issuance amid ample excess liquidity and sluggish loan growth is changing now that loan growth is back and QT approaches,” Bozar said in a report on Wednesday.

Bozar was referring to “quantitative tightening,” a reversal of the Fed’s bond-buying stimulus.

Falling demand for long-term US Treasuries could put more pressure on yields that jumped this month as investors adjusted to expectations that the Federal Reserve will tighten monetary policy more aggressively to counter persistent inflation.

“We are now at a point where banks are more interested in making loans than buying securities – and that should be on the back side of the treasury market in question,” Bozar said.

Higher interest rates, and therefore more expensive money, are expected to boost banks’ margins as lending rates tend to rise faster than the short-term lending rates banks use to borrow.

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

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(Reporting by David Barbuscia). Editing by Jonathan Otis

Our Standards: Thomson Reuters Trust Principles.


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