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Banks amass $2.4 trillion hoard of bonds as BofA leads rush 

October 31, 2016

Liz McCormick & Andrea Wong, Bloomberg

If the world’s biggest economy is really on the upswing, then why are America’s banks stockpiling a record amount of ultrasafe bonds?

After all, jobs are back, the Federal Reserve is close to raising interest rates again and growth has perked up after a sluggish first half. But instead of ramping up lending to keep up with deposits, banks are plowing into U.S. government and related debt at the fastest clip since 2014.

The easy answer, of course, has to do with post-crisis financial regulations, which were designed to curb risk-taking and have compelled banks to hold more high-quality assets. Yet in many ways, the buildup reflects a more worrying sign. In the past year, more loan officers at large and midsize banks have tightened credit to businesses than at any time since 2009, when the U.S. was still reeling from the housing bust. Americans are also saving more rather than taking on extra debt, damping demand for new loans.

Though it’s hard to say whether that means the seven-year-long U.S. expansion may be closer to an end than the upbeat data suggest, the demand for bonds is welcome news for investors buffeted by the biggest monthly selloff since 2010. Read more

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