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Market News 10-year Treasury approaches 1.75% as Fed phases out relief of SLR

10-year Treasury approaches 1.75% as Fed phases out relief of SLR

The Federal Reserve announced that it would not extend the period of the Supplementary Leverage Ratio (SLR) exemption measures, which has caused the US Treasury bond yields that had just had a respite to rise again, and financial stocks have been hit hard.

Eden
2021-03-22
527

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The Federal Reserve announced on Friday that it would not extend the supplementary leverage ratio (SLR) exemption period, triggering a rapid rise in U.S. Treasury yields, with 10-year Treasury yields rising to the highest intraday 1.749%. The Federal Reserve implements SLR exemptions, allowing banks to reduce the proportion of capital they hold and increase the proportion of treasury bonds and other assets. During the epidemic, the purpose of this measure was to appease the bond market and encourage banks to lend.


After the news was released, financial stocks were hit hard. The Dow Jones Industrial Average fell 234.33 points, or 0.71%, to 32,627.97 points, a cumulative decline of 0.5% throughout the week; the Nasdaq Composite Index rose 99.07 points, or 0.76%, to 13215.24 points, a cumulative decline of 0.8% throughout the week; US standards The Poole 500 Index fell 2.36 points, or 0.06%, to 3913.10 points, a cumulative decline of 0.8% throughout the week.


Pressure gold

The fear of deflation has led to a high risk aversion, but the market can still see this week that because gold is a non-yielding asset and the risk-free U.S. bond yield has stabilized, it continues to suppress the growth of gold. The downturn has failed to drive the price of gold higher, and it is worth noting that the current stock futures and commodities are under pressure due to pessimism, so the future trend of gold prices still needs to wait and see the changes in US bond yields.


What is Supplementary Leverage Ratio (SLR)

SLR is the capital adequacy ratio index set by the Federal Reserve for commercial banks. After the financial crisis, the Federal Reserve revised the SLR regulations to limit the additional leverage of major U.S. banks to prevent financial risks. The calculation formula of SLR is Tier 1 capital/risk assets, where Tier 1 capital includes common stocks and other Tier 1 capital.


According to Basel III, for banking institutions with total assets of more than US$250 billion and foreign banking institutions’ domestic holding companies in the United States, the SLR must reach a minimum of 3%; the eight major banks such as JP Morgan Chase, Citi, and Bank of America must meet stricter requirements. SLR standards, SLR requirements need to reach a minimum of 5%.


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