Daily Commentary BY THE CURVE TEAM –

US Yields In Headlights Again

23rd of March, 2021

There is anticipation of impending volatility in US treasury yields again.

Yesterday our commentary focused in on the Supplementary Leverage Ratio (SLR) relaxed rules expiring at the end of the month. This has the potential to lead to a sell-off in treasuries as banks reduce their assets and speculation the Fed will end QE early to assist the banks in meeting the regulatory requirements.

An additional factor this week is the US issuing USD 183 billion of treasuries. This outpaces the USD 120 billion of QE purchases per month by the Fed.

It will add another batch of supply of treasuries, which may increase yields if there is a lack of demand. Recent issues were under subscribed relative to prior issues, so given the SLR changes and huge issuance the demand for these will be monitored closely.

Otherwise, it is a quiet week ahead prior to the end of the month. The next RBA meeting is in two weeks and the only release prior to the meeting is a research paper titled ‘Financial Conditions and Downside Risk to Economic Activity in Australia’.

Optimism is becoming prominent for the economic outlook, so considering risks to the recovery should be useful for a wholistic view of the economy.

Josh Stewart

Associate - Money Markets