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U.S. Treasury yields bounce off lows after Fed allows regulatory relief to expire

 U.S. Treasury yields were off their overnight lows Friday morning after the Federal Reserve allowed regulatory relief for banks capital requirements to expire, adding to concerns demand for Treasurys could fade in the coming months.

Investors also eyed the stunted progress of vaccination efforts in Europe amid fears the eurozone will be unable to share in the global recovery this year.

What are Treasurys doing?

The 10-year Treasury note yield
TMUBMUSD10Y,
1.733%

fell 1.2 basis points to 1.717%, after trading near 1.67% overnight, while the 2-year note rate
TMUBMUSD02Y,
0.153%

was up 0.4 basis point to 0.163%. The 30-year bond yield
TMUBMUSD30Y,
2.462%

slid 3.3 basis points to 2.443%.

What’s driving Treasurys?

The Federal Reserve on Friday announced it will not extend an exemption ending March 31 that allowed banks to exclude Treasurys and deposits with the central bank from their assets when calculating a key bank capital measure known as the supplementary leverage ratio.

Some analysts said that big banks would have a reduced appetite for Treasurys if they had to add them back to the calculation of their capital requirements.

Read: Fed won’t extend relief for banks from key capital rule

Meanwhile, Europe’s top drug regulator said the AstraZeneca vaccine was safe as several eurozone economies contemplate lockdown measures in the face of another wave of COVID-19 cases. This comes after several European countries suspended use of the AstraZeneca vaccine.

The concern is European authorities have been slow and unsuccessful at inoculating the continent’s population, allowing the pandemic to spread anew and stymie the eurozone’s economic recovery.

Read: European stocks fall as inflation and oil demand weigh on markets

What did market participants say?

“Even though EU governments are re-starting AstraZeneca vaccine protocols, the pause and confusion highlights slow progress and risks of another spring wave of Covid-19,” said Jim Vogel, an interest-rate strategist at FHN Financial.

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