By Davide Barbuscia
NEW YORK (Reuters) – Trump’s commitment to contain long -term American treasury yields has strengthened the expectations of the bond market that a regulatory change for a long time designed on the requirements of banking leverage could finally be profiled.
Some traders bet the regulators could soon focus on an additional lever ratio exam (SLR), a rule requiring the large American banks have an additional layer of capital absorbing the losses against the debt of the American government and the deposits of the Central bank.
The possible policy change would mean that banks would not need to put aside as much additional money when they hold safe assets such as treasury bills.
This could possibly help to push the yields of the American treasury below, said certain investors and analysts, giving banks more latitude to hold treasury bills and probably increase the demand.
Anticipation comes after the American Treasury Secretary, Scott Bessent, said last week that the administration of President Donald Trump was focused on the content of the treasury yields at 10 years old, a constitutive element of global financial markets and a Reference for consumer loan costs.
The White House and the Treasury Department did not immediately respond to requests for comments.
Ryan O’malley, head of portfolio management at Ducenta Squared Asset Management, said that a potential SLR exam would be positive for the treasury market and other debt assets, which would benefit from banks freeing their balance sheets .
“This will increase their request for treasury bills and other assets. This will probably strengthen the credit profile of banks,” he said.
The SLR was introduced within the framework of regulatory efforts after the global financial crisis of 2008. Over time, however, many players in the treasury market have come to see it as a major obstacle to banks providing liquidity to traders, in particular during periods of increased volatility.
The Bank Policy Institute (BPI), a professional association representing major American banks, said in a recent article that a recalibration of the ratio would be crucial to preserve the functioning of the market, in particular given the prospect of an increase in The issue of public debt due to significant budget deficits.
“We believe that the changes to the SLR could be made relatively quickly,” Francisco Covas, executive vice-president and research chief in BPI, told Reuters.
The SLR should be close to the list of capital priorities for American regulators, added Covas, referring to the Federal Reserve, the Currency Controller office and the Federal Deposit Insurance Corporation.
Treasury yields have been expanded in recent days, a sign that investors are starting to anticipate an examination of the rule. Interest rate exchanges allow traders to cover the risk of interest rate by exchanging a floating rate for a fixed rate, or vice versa.
