Odd Lots Zoltan Pozsar on What Just Happened with the Treasury Market
Mar 4, 2021
Zoltan Pozsar, a renowned strategist from Credit Suisse, dives into the recent turmoil in the Treasury market, sparking discussions about unexplained yield spikes. He unpacks the systemic issues behind this volatility, the potential need for regulatory reforms, and the implications for market stability. Pozsar also touches on liquidity challenges that banks face and how past Fed policies have influenced current dynamics. The conversation intriguingly parallels the GameStop phenomenon while reaffirming the resilience of treasury bonds in turbulent times.
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Treasury Market Volatility
- Recent U.S. Treasury market volatility stems from several factors, including market reactions to central bank actions and technical drivers.
- The Democratic win, vaccine rollout, and inflation concerns have contributed to a steepening yield curve.
SLR and Market Liquidity
- Uncertainty around the supplementary leverage ratio (SLR) exemption for treasuries affects bank participation in auctions, impacting market liquidity.
- The SLR exemption impacts banks' ability to hold treasuries and reserves, influencing their response to market dynamics.
Balance Sheet Constraints and Solutions
- Zoltan Pozsar suggests that balance sheet constraints on banks could lead to negative deposit rates and increased use of money market funds.
- He proposes uncapping the reverse repo facility to provide a flexible investment option for excess cash.