/biz/ - Business & Finance

>>11881119
Commercial Bank Demand.

> This is the biggest source of demand disappointment in 2018.

> According to Panigirtzoglou, he had expected G4 commercial banks to offset some $500bn of the more than $1tr shift in the central bank flow this year.
> This was based on an estimate that the $7tr of QE purchases by G4 central banks in the prior five years had seen commercial banks accumulate around $3tr less bonds than they would accumulated if QE had not happened.

> However, the bank's latest estimate of G4 bank bond demand for 2018 suggests they offset only around $200bn of the central bank QE flow shift, "or a multiplier of around 0.2 rather than slightly more than 0.4 we had expected", according to the Flows and Liquidity author.

> As the primary reason for this weakness in demand relative to his baseline expectations, the JPM strategist notes the fact that US banks have ceased accumulating excess deposits in 2018, reducing the need to increase holdings of liquid assets.

> Moreover, US banks’ growth in total assets effectively ground to a halt this year for the first time since 2010. Furthermore, US banks appeared to have more than adequate HQLA to absorb some reduction in reserve holdings before needing to accumulate further liquid assets. That said, with front-end Treasuries having cheapened significantly relative to OIS, this has increased their attractiveness for banks to hold as HQLA for regulatory purposes.

> Additionally, given the continued decline in the G4 central bank flow, the bank sees G4 commercial banks providing some offset to this decline next year also.

> "However, given the weakness in this offset this year, we adopt the more modest 0.2x multiplier as a conservative estimate, which gives us an improvement in commercial bank demand of around $100bn in 2019."

> Unfortunately that is not nearly enough to offset the big jump in net supply