Bessent reiterates what he's banking on for help/JGBs rally/More rigs laid down/Booz sobering up

He's said it before but made it clear last week the help he's anticipating in keeping long-term interest rates low. Secretary Scott Bessent in a long form Bloomberg interview Friday reiterated again the likely easing soon of the Supplementary Leverage Ratio that will allow US banks to hold more Treasuries as it would be given a lower risk weighting. "We are very close to moving" he said. Bessent's hope that upon a reset, banks would add more Treasuries to their balance sheet and voila, the flood of supply still coming would find a fresh incremental buyer.

I think though his hopes might be too optimistic. This is what Jamie Dimon said on the last JP Morgan conference call on how a change in the SLR requirement would impact their behavior. "The reason to change some of these things is so banks - the big market makers can intermediate more in the markets. If they do, spreads will come in, there'll be more active traders. If they don't, the Fed will have to intermediate, which I think is just a bad policy idea. Every time there's a kerfuffle in the markets, the Fed has to come in and intermediate. So they make these changes."

He also said they would not be looking to add to their holdings of Treasuries so an easing of the SLR would just improve market making which would create a deeper, more liquid market. Something positive and needed but not the buyer that Bessent is hoping for. And for those banks that will increase their holdings of Treasuries, the experience of Silicon Valley Bank would most likely mean they would be buying T-bills rather than adding much duration. I thus think the long end of the US yield curve is going to have to find other help.

Treasuries are rallying today following a notable bounce in JGB's after this story from Reuters, "Japan to consider trimming super-long bond issuance, sources say." The piece said "Japan will consider the trimming of issuance of super-long bonds in the wake of recent sharp rises in yields for the notes, two sources told Reuters on Tuesday, as policymakers seek to soothe market concerns about worsening government finances...The Ministry of Finance (MOF) will consider tweaking the composition of its bond program for the current fiscal year, which could involve cuts to its super-long bond issuance, said the sources who had direct knowledge of the plan. The MOF will make a decision after discussions with market participants around mid to late June, the sources said."

In response to the story, the 40 yr JGB yield fell 23 bps to 3.32%. Following this, the 10 yr US yield is back below 4.50% and the 30 yr is under 5% again. The yen is also lower vs the US dollar.