SLR Expiry sends yield tentatively higher, stocks mixed

Risk appetite got hit with an early one-two punch after Secretary of State Blinken took a hardline approach with his first meeting with China and with the Fed’s decision to end a pandemic emergency program for banks.  Quadruple witching will also add to today’s volatile session.  The Nasdaq is positive in early trade, while the Dow and S&P 500 index are paring earlier losses. 


Treasury yields spiked after the Fed decided to not extend capital relief to the largest banks.  The Supplemental Leverage Ratio will expire at the end of the month, a decision that surprised many and seemed premature.

The big fear is that some banks might resist lending because they might struggle putting more capital aside.  Banks appear to be healthy, with $3.5 trillion in reserves and should be able to handle permanent changes to SLR.    

Fed policymakers were concerned that expiration of the SLR exemption would trigger banks to stop buying Treasuries or accepting deposits which would send cash into the money markets.  Some analysts were convinced the ending of the SLR exemption will wreak havoc in the repo markets.  Repo financing however should see little impact on the Fed’s decision to let the SLR expire because repos were not exempt at the holding company. 

Wall Street is closely going to follow the upcoming Treasury auctions and if bank interest is low, the bond market selloff could intensify. 

The Fed’s decision to let the capital relief exemption to banks expire at the end of the month sent financials sharply lower and reminded investors that the current economic recovery warrants the phasing out of pandemic-era programs. 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya