U.S. Treasuries Extend Gains Amid Signals of Regulatory Easing in Financial Markets

U.S. Treasuries: Extend Gains Amid Signals of Regulatory Easing in Financial MarketsU.S. government debt posted modest gains on Friday after Treasury Secretary Scott Bessent suggested deregulation efforts were rapidly progressing. In an interview on Bloomberg’s Wall Street Week, Bessent mentioned that capital requirements tied to Treasuries could be eased as early as this summer.

Yields Edge Lower After a Volatile Week

The move nudged yields down by one to two basis points across the curve. The 30-year Treasury yield hovered around 5.03%, slightly above the 4.9% mark before Moody’s stripped the U.S. of its last remaining triple-A rating. The week had been marked by global surges in long-term yields amid rising concerns over expanding fiscal deficits.

Bessent Downplays Debt and Deficit Worries

Bessent dismissed fears about the national debt trajectory, arguing that projections overlooked the potential for strong economic growth and rising tariff revenues. He also referred to Moody’s downgrade as a “lagging indicator” that failed to reflect the current fiscal strength.

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Markets Remain Cautious Despite Upbeat Remarks

Still, analysts remain wary. Priya Misra, a portfolio manager at JPMorgan Asset Management, warned that market stability would ultimately depend on “the fundamental supply-demand dynamics for long-term Treasuries and the broader economic outlook.”

Trump’s Trade Threats Also Moved the Market

Before Bessent’s comments, Treasuries had already rallied in response to Donald Trump’s threats to impose a 50% tariff on EU imports and a 25% levy on Apple if the company doesn’t relocate iPhone production to the U.S.

SLR Reform Could Boost Treasury Demand

Regulators are close to revising the supplementary leverage ratio (SLR), which restricts banks in the $29 trillion Treasury market. Authorities suspended the rule after COVID to reduce financial stress.

Expectations of Greater Bond Market Liquidity

The reform will boost demand for Treasuries over interest-rate swaps. Ed Al-Hussainy, a rates strategist at Columbia Threadneedle, said revising the SLR will strengthen banks’ appetite for Treasuries. However, he warned banks are still unlikely to be the marginal buyers as auction volumes rise to finance growing deficits.