Daily Market Color

Bank Talk on a Quieter Day

Rates mixed in quiet session. Swap rates and Treasury yields were mixed today, the 2-year yield rising just over 1bp to 4.48% while the 10-year yield fell 2bps to 3.66%. Futures now suggest a ~71% chance of a 25bp rate hike by the end of the July FOMC meeting, with June seen as a likely “skip.” Elsewhere, bank stocks rose on the day, the KBW Regional Bank Index climbing 5.41% while the KRE Index rose 2.25%.

U.S. regulators to announce Basel III Endgame. Yesterday, it was revealed that a long-awaited proposal for additional bank capital requirements is expected to be announced by U.S. regulators before the end of June, according to a source with knowledge of the situation. This information follows a speech to Congress in April by the Fed’s Michael Barr, who said that the proposal would likely be released this summer. The new rules, known as the Basel III Endgame, include revised capital requirements for capital markets activities which are a key driver of the increased capital applicable banks would be required to hold. The impact could be material – in 2021, former Fed Vice Chair of Supervision Randal Quarles said the new rules could result in capital requirement increases of up to 20% for the largest banks. Proponents argue that higher capital requirements could help prevent bank failures, but they can also negatively impact a bank’s earnings and lending potential.  

Day ahead. Mortgage figures will lead the session at 7 AM ahead of trade balance data at 8:30 AM. Consumer credit data will be released at 3 PM.

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