Bank of America and JP Morgan invested a combined $103.8 billion in US Treasuries in their available-for-sale (AFS) books during the first quarter of 2024, ostensibly betting on fixed-income markets cementing their turn-of-the-year gains.

BofA’s holdings of AFS Treasuries, measured at fair value, rose by 29% during the period, topping a three-quarter reversal from a post-pandemic nadir of $70.4 billion to an all-time high of $228 billion.

JP Morgan, whose AFS book had stagnated at mid-2019 levels as of last December, boosted balances by 91.8%, reaching a two-year high of $110.6 billion in Q1.

Several other US dealers continued to show renewed interest in mark-to-market Treasuries, which have the potential to rally after being battered with losses during the US Federal Reserve’s rapid-fire rate tightening between March 2022 and July 2023.

Goldman Sachs added $6.4 billion of US govvies, marking a 13.8% increase. BNY Mellon and State Street added $3.6 billion and $3.4 billion respectively, representing boosts of 21.6% and 41.3%.

Conversely, some lenders reduced their holdings. Citi and Wells Fargo cut their balances by $5.5 billion and $2.9 billion, or 2.6% and 5.6%, respectively. The banks did not specify whether these reductions were due to sales or maturities.

What is it?

A bank’s securities holdings are typically classified in one of three ways. Held-to-maturity (HTM) securities are those it intends to keep on its books over the long term; trading securities are those it holds for intermediation and plans to sell in the short term; and available-for-sale securities, which occupy a middle ground, meaning they can be either held-to-expiry or sold to pocket gains in value.

AFS and trading securities are marked-to-market, meaning their values fluctuate depending on what a potential buyer is willing to pay for them. HTM securities, in contrast, are accounted for at amortised cost, which generally equals the price the bank paid to acquire them, minus any principal amortisation and discount or premium to face value.

Why it matters

With investors anticipating a Fed rate cut, banks are mobilising their asset-buying firepower to rebuild their AFS books as quickly as they had drained them during the tightening phase.

However, this doesn’t necessarily mean they are all pursuing the same investment strategies.

First, banks may be targeting different points on the yield curve. While standardised FR Y-9C filings do not break down security types by maturity, they show that although both BofA and JP Morgan increased their holdings of instruments maturing in one to five years, these made up 17.6% of the former’s total book, versus 26.8% at the latter. Similarly, 70.2% of BofA’s securities mature in more than five years, compared with 53.1% at JP Morgan.

Second, each dealer may be financing their purchases differently. At JP Morgan, the increase in AFS Treasuries coincided with a $29.9 billion cut in the HTM pen, hinting at reinvestment of proceeds from maturing securities as the primary driver of the AFS top-ups. On the other hand, BofA’s HTM Treasuries remained largely unchanged during the period.

Third, the risk of volatility in bond prices persists. In May, about a month-and-a-half after the reference date for the data in this article, the yield on the S&P Global’s US Treasury Bond Index hit levels last seen in November 2023. Ongoing macroeconomic and political uncertainties make it far from guaranteed that yields will revert to late-2023 levels. This may explain why some other dealers like Wells Fargo and Morgan Stanley are not rushing back into Treasuries just yet.

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