New test for US banks

As depositors in the US turn to higher-yielding investment instruments, banks that are having difficulty holding deposits face a new test: The intensive bond issuances initiated by the US Treasury following the decision to suspend the debt ceiling. While it has been stated that the new test for US banks will be the auctions, there was high demand for the US Treasury Department’s 3- and 6-month bond auctions, with the total issuance amount reaching $123 billion. This week’s bond auctions will increase the supply in circulation by approximately $90 billion, and according to Bank of America, there will be an increase of approximately $1.4 trillion from June to December. This corresponds to seven times the average amount for the same period from 2015 to 2019. The bank’s strategists predict that in this case, money market yields will shift upwards by 25 to 40 basis points. According to Mark Cabana, Bank of America’s US Interest Rate Strategy Director, this is a new challenge for the banking sector. Cabana said, “We know the banking system is under pressure. “We know that some banks are increasingly interested in emergency funding from the Fed, and that will be another challenge for holding deposits in an environment where all yields are rising,” he said.