FedFin Forecast: Govvie Central Clearing Uncertain, But New Rules for Sure
As we noted earlier (see Client Report REFORM200), we do not expect U.S. regulators to extend SLR relief (see FSM Report LEVERAGE23) after its scheduled March expiration. This is not to say that Treasury and the Fed will leave the Treasury market as is despite the systemic crash that forced central-bank rescue when the COVID crisis hit last year. They know all too well that swelling Treasury issuances will strain market capacity even if renewed systemic stress or idiosyncratic liquidity incidents do not. Both Treasury and the Fed now and under the Biden Administration are also acutely aware that market players are increasingly counting on Fed intervention, a moral-hazard incentive they will seek to stifle as quickly as possible.
