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Strategies & Market Trends : The Residential Real Estate Crash Index
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From: Les H5/3/2010 10:42:08 AM
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Banks Buying Treasuries Help Keep Borrowing Rates Low
By Cordell Eddings

May 3 (Bloomberg) -- Banks are increasing purchases of U.S. government securities to pump up profits while lending to businesses languishes near the lowest levels since credit markets started to freeze almost three years ago.

Holdings of Treasuries and agency debt rose each of the past five weeks, an increase of $63.2 billion to $1.5 trillion, according to Federal Reserve data. At the same time, commercial and industrial loans climbed less than 1 percent to $1.27 trillion and are down 23 percent from the record high level in October 2008.

Banks, facing increased regulation after posting $1.78 trillion of writedowns and losses since the start of 2007, are taking advantage of the record gap between their borrowing costs and yields on U.S. debt instead of lending, according to data compiled by Bloomberg. Bank demand for Treasuries is helping cap yields as President Barack Obama sells record amounts of bonds to finance a budget deficits that exceeds $1 trillion.

“The risk of owning Treasures is lower than creating loans,” said Anthony Crescenzi, a market strategist and money manager at Newport Beach, California-based Pacific Investment Management Co., the world’s largest bond-fund manager. “There is no clarity on what the capital climates will be domestically or on a global scale with regulation coming down the pipes, which means banks will be banking their money in safer assets.”

bloomberg.com
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