Nasdaq Attempts Rebound
[Asia Economy New York=Correspondent Baek Jong-min] The U.S. Federal Reserve (Fed) has decided not to extend the exemption from the supplementary leverage ratio (SLR) regulation, which is set to expire at the end of this month.
On the morning of the 19th (local time), the Fed announced in a press release that the temporarily applied SLR exemption measure will expire as scheduled.
Fed Chair Jerome Powell had announced on the 17th, when he announced the interest rate freeze, that he would soon make an announcement regarding the SLR.
On May 15 of last year, the Fed exempted large banks from the SLR regulation in response to the financial market turmoil caused by the COVID-19 pandemic.
This measure primarily reduced the burden on large banks to comply with capital ratio requirements. As a result, banks were able to hold more government bonds, but now they must sell the government bonds they hold to comply with capital ratio requirements. This may also reduce banks' lending capacity.
This is considered a factor that could further drive down U.S. Treasury prices, which have recently weakened due to inflation concerns.
Following the Fed's announcement, the yield on the U.S. 10-year Treasury bond surged again to 1.74%, the highest level in 14 months. The 30-year yield also surpassed 2.5% during the session.
Regarding this, the Fed explained, it will take appropriate measures to ensure that banks' capital ratios do not decline due to the end of the SLR exemption.
CNBC reported that Wall Street had hoped for an extension of the SLR exemption from the Fed but failed to achieve it.
The U.S. stock market is showing mixed reactions. The Dow Jones Industrial Average, centered on blue-chip stocks, is experiencing a larger decline following the announcement of the end of the SLR exemption. At 10:40 a.m., the Dow was down 0.85%.
This is interpreted as the effect of bank stocks, which had been strong due to expectations of rising bond yields, turning weak all at once. Large commercial banks such as JPMorgan, Wells Fargo, and BOA fell more than 3%, and investment bank Goldman Sachs also dropped 1.5%.
The Nasdaq index is attempting a rebound despite strong bond yields, rising 0.43%.
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