Banks to Pull Out of Treasuries

           From today's Financial Times:

"Some of Wall Street’s biggest banks are preparing to cut their use of U.S. Treasuries in August as a precaution against any turbulence that could follow if warring Republicans and Democrats fail to increase soon the U.S. debt ceiling, a senior bank chief said.

One strategy, which bank executives only agreed to discuss without attribution due to the political sensitivities related to discussing Treasury debt, is to have more cash on hand to put up as collateral against derivatives and other transactions, decreasing the financial system’s reliance on Treasuries.

'We’re planning to lower our reliance on the use of Treasuries in early August and have more cash on hand as a contingency measure,' said a U.S. bank chief."

It is interesting that as of 3 PM Eastern time the mainstream American media has made no report of this story. The story has only been carried by The Atlantic, FT, Reuters and the Huffington Post. This story is not good news. It follows on the heels of a speech last week by Bill Gross of Pimco the world's largest bond fund. Pimco not only has sold all US Treasuries but has gone short. On June 8, Gross said that anyone holding US Treasuries would be cooked like frogs in boiling water."

 The potential is great for interest rates to go up and there could be a problem with credit availability. It is most important that small business find a way out of using bank credit.