Contrarian Treasury bulls will delight in knowing banks are trimming their holdings of U.S. government debt for the first time in six years. Now owning $1.8T of Treasurys (vs. 1.89T a year ago), banks' holdings of government paper of less than 70% of cash is the lowest since the Fed began compiling the data in 1973.
Citigroup cuts its Treasury holdings 10% this year to $82.6B. Bank of America cut by 88% to just $2.97B.
“Like a lot of other people who have been moving out of fixed income, it’s largely to avoid the fallout from tapering," says Thornburg's Jeff Klingelhofer. Yes, but what about the possibility banks are finding more profitable things to do besides lending to the government? Not so at least at the community bank level, says consultant Jeff Caughron. "Lending has not picked up a great deal ... (community lenders), by and large, are taking advantage of the steeper yield curve and putting more money to work in the bond market.”
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