Short-Term Rates Might Be Better Long-Term Guide on Banks— Leverage | The Wall Street Journal

Short-Term Rates Might Be Better Long-Term Guide on Banks— Leverage

Falling short-term yields could prove more relevant than rising 10-year Treasury yields when it comes to thinking about banks and the Federal Reserve.

When it comes to thinking about the Federal Reserve and banks, some investors might not be looking at the right part of the market. On Friday morning, the Fed said it wouldn't extend an emergency pandemic rule exempting Treasurys and reserves from a big-bank leverage measure beyond March 31, when it is due to expire. Without that exemption, big banks will be running closer to maximum leverage levels. One worry has been that this could force some balance-sheet shrinking and selling of longer-term Treasury bonds, putting further upward pressure on those rates.

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