Banks’ focus on loan growth could impact US Treasuries – Credit Suisse

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NEW YORK, Jan 20 (Reuters) – U.S. banks’ appetite for U.S. Treasuries could slow as they focus on loan growth, even as the Federal Reserve plans to cut assets and raise bonds. interest rates to fight inflation, said Credit Suisse analyst Zoltan Pozsar.

Asset purchases by the Fed contributed to unprecedented liquidity and trading activity during the pandemic, but trading revenue for major Wall Street banks fell in the fourth quarter as markets normalized and the US central bank began to scale back its asset purchases, which led to lower trading volumes. . Read more

Bank of America (BAC.N) reported a better-than-expected 30% increase in quarterly profit on Wednesday, 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 revenue fell, and Goldman Sachs (GS.N) missed quarterly profit expectations on Wednesday, hit by lower trading income. Read more

“Our view that bank portfolios will easily absorb US Treasury issuance amid excess liquidity and slow loan growth is changing now that loan growth is back and QT is approaching,” he said. Pozsar said in a report Wednesday.

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

A drop in demand for long-term U.S. Treasuries could put further pressure on yields that have surged this month as investors adjust to expectations that the Fed will tighten monetary policy more aggressively to counter constant inflation.

“We are now at a stage where banks are more interested in lending than buying securities – and that should be on the back end of the Treasury market,” Pozsar said.

Rate hikes, and therefore more expensive money, should boost banks’ margins, as lending rates tend to rise faster than the short-term ones that banks use to borrow.

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

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Reporting by Davide Barbuscia; edited by Jonathan Oatis

Our standards: The Thomson Reuters Trust Principles.

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