Most U.S. Treasury yields ended little unchanged on Friday, bouncing overnight lows, but saw weekly increases after the Federal Reserve allowed regulatory aid to be removed from banks’ capital requirements, which fuel concerns that Treasury demand could disappear in the coming months.
However, investors also noted the dramatic progress of vaccination efforts in Europe, in a fear that the eurozone may not be able to participate in the global economic recovery this year.
What do treasures do?
The 10-year Treasury note generates TMUBMUSD10Y,
it remained flat at 1.729%, after trading near 1.67% overnight, despite leaving its global weekly rise intact at 9.5 basis points.
The two-year grade rate TMUBMUSD02Y,
fell one basis point to 0.149%, leaving it virtually unchanged during the week, while the yield on 30-year bonds TMUBMUSD30Y,
it remained stable at 1.729%, leaving it with a weekly rise of 9.5 basis points.
What is driving Treasurys?
On Friday, the Federal Reserve announced it would not extend an exemption ending March 31 that would allow banks to exclude treasuries and deposits from the central bank from their assets when calculating a key measure of bank capital known as the supplementary leverage ratio. (Reflex)
Some analysts said large banks would have a decrease in their appetite for treasury if they had to add them back to the calculation of their capital requirements.
Read: The Fed will not extend the relief of banks from the key capital rule
Meanwhile, Europe’s top drug regulator said the AstraZeneca vaccine was safe, as several eurozone economies are contemplating closure measures in the face of another wave of COVID-19 cases. This comes after several European countries suspended the use of the AstraZeneca vaccine.
The concern is that European authorities have been slow to inoculate the continent’s population, which has allowed the pandemic to spread again and hamper the economic recovery of the eurozone.
Take a look: European stocks fall as inflation and oil demand weigh on markets
What did market participants say?
“While SLR exemptions should be phased out, the Fed’s warning that it could envisage more permanent adjustments to capital requirements to support financial markets if necessary could help“ mitigate the adverse impact on Treasury yields, ”said Kathy Bostjancic, chief financial economist at Oxford Economics.