Lenders have an added incentive to buy Treasuries after the Basel Committee on Banking Supervision proposed rules on Oct. 4 that banks increase available capital and improve their measurement and control lending risk.
Banks will have less than five years to comply with the so- called Basel III rules for minimum tier-1 capital ratios and until Jan. 1, 2019, to meet the capital buffer requirements. The Treasury Borrowing Advisory Committee forecast in February that banks may have as much as $1.6 trillion in demand for Treasuries in the next five years based on the evolving rules.
"You have an environment effectively where the private markets are in deleveraging mode and the governments are in re- leveraging mode," said Jeffrey Rosenberg, head of global credit strategy research at Bank of America Merrill Lynch in New York.