FXStreet (Guatemala) - Analysts at Bank of America Merrill Lynch explained that so far this year, US commercial banks have bought Treasuries (UST) and agency debt at the fastest pace since the crisis.
“According to the latest Federal Reserve H8 data, banks have bought $72bn of UST and agency debt YTD, compared with shedding about $40bn in 2013 and buying $66bn in 2012."
"Nearly all of the increase this year occurred among the largest 25 domestic banks, which represent 66% of total US commercial bank assets. Given that net agency debt issuance has been negative, much of this bank demand is likely to have been in UST."
"There is not much discussion in the 2Q earnings releases about why UST have become the asset of choice for banks.
“In our view, it reflects an effort by banks to optimize their balance sheets to maximize ROE subject to an array of regulatory constraints. The biggest advantage of UST is that they qualify as a Level 1 asset under the high quality liquid asset (HQLA) definition of the liquidity coverage ratio (LCR), but offer a better yield than cash."