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Treasury Market’s Emergency Support Is Poised to Vanish Soon

  • Banks got exemption last year that let them hoard U.S. debt
  • Partial extension is possible, even if full one unlikely: BofA
A statue of Albert Gallatin, former U.S. Treasury secretary, stands outside the U.S. Treasury building in Washington, D.C.

A statue of Albert Gallatin, former U.S. Treasury secretary, stands outside the U.S. Treasury building in Washington, D.C.

Photographer: Andrew Harrer/Bloomberg
Updated on

The Federal Reserve looks poised to disappoint Wall Street by not extending an emergency exemption that’s propped up the Treasury market since last year’s pandemic panic.

After bond market liquidity dramatically disappeared a year ago, the Fed let banks stop factoring in Treasuries to their so-called supplemental liquidity ratios -- letting them stockpile U.S. debt without breaking regulations. That exemption expires March 31, and central bankers have given no indication it’ll get authorized for longer.