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United States Banks Stockpile Ultrasafe Bonds

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Banks in the United States are accumulating and storing $2.4 trillion of ultrasafe bonds. That made economies doubt their claimed increasing trend.

Federal Reserve is nearing its interest rate hike once again in line with return of jobs. After a slow first half of the year, growth recovers. Nonetheless, banks are turning to the U.S. government and associated borrowings in the fastest pace. This should not be the case for what is anticipated is a ramp-up on lending to streamline deposits.

The reason for the unconvincing move by United States is the after-effects of financial regulations. The regulations were created to encourage banks to accumulate more high-quality assets and reduce taking risks. Still, the build-up activity of banks poses concern.

When the United States is still recovering from housing raid in 2015, restrictions on business credit were implemented. The constraints were pushed forward by loan officers, mid-size banks, and large financial firms. Instead of applying for extra debt, citizens are found to be saving more, resulting to a decline on demand of new loan.

Despite the lack of assurance that the 7-year U.S. expansion may be ending, demand for bonds may increase. This will benefit investors that were hit by the biggest cut-rate sale since 2010.

United States Banks Stockpile Ultrasafe Bonds

Source: Bloomberg

In July, the U.S. 10-year note had increased yields from its all-time low record of 1.318 percent.  At present, there is around 1.84 percent climb. For about six years, bonds had its worst month as losses also increase.

Deposit growth is cutting off demand for loans, which makes banks funnel high amounts of money into safe assets. In the third quarter of 2015, deposits increased to $5.2 trillion by 6.7 percent.

United States Banks Stockpile Ultrasafe Bonds

Source: Bloomberg

Instead of preferring 0.5 percent earning by leaving cash in Federal Reserve, banks opted for 0.85 percent yield from U.S. government bonds.

Banks will remain wary of leaving cash to Federal Reserve even if its easy-money policies are presently fluid, which is beneficial for government securities.

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