U.S. Banks Hoard $2 Trillion of Ultra-Safe Bonds
by Liz McCormickDaniel Kruger
7:00 PM EST February 22, 2015
(Bloomberg) -- What do America’s banks know about the state of the U.S. economy that has them hoarding ultra-safe bonds?
Growth is on a tear, hiring is the strongest in decades and households are the most upbeat since 2011. Yet banks such as Bank of America Corp. keep plowing their burgeoning deposits into U.S. government and related debt -- pushing the industry’s holdings past $2 trillion -- instead of lending it all out.
Part of the buildup has to do with rules that require banks to hold more high-quality assets in the wake of the worst financial crisis since the Great Depression. But it also reflects how borrowers, particularly among Americans scarred by the housing bust, are still repairing their finances rather than going into debt to splurge on big-ticket items. And that may mean the U.S. recovery isn’t quite as robust as all the upbeat data would suggest.
“Banks have so much cash,” said Peter Tchir, the New York-based head of macro strategy at Brean Capital. “Lending has loosened, but it is still just simpler for banks to own Treasuries.”
While the buying may help to contain any jump in Treasury yields as the Federal Reserve moves toward raising interest rates, what it says about loan demand also has implications for how soon benchmark borrowing costs will rise this year.
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http://www.bloomberg.com/news/articles/2015-02-23/bofa-leads-charge-into-bonds-as-banks-build-2-trillion-hoard
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