Banks Are Bingeing on Bonds, but Not Because They Want To (Published 2021) (2024)

The economy is growing. Businesses are hiring. Stocks are marching ever higher. And banks are sitting on big piles of cash.

If only they had a better place to put it.

Lingering supply chain problems and anxiety over the potential for the Delta variant of the coronavirus to upend the economy again have pared back borrowing by businesses. And consumers flush with cash thanks to government stimulus efforts aren’t borrowing heavily, either.

So banks have largely been left to invest in one of the least lucrative assets around: government debt.

Rates on Treasury bonds are still near historically low levels, but banks have been buying government debt like never before. In the second quarter of 2021, banks bought a record of about $150 billion worth of Treasurys, according to a note published this month by JPMorgan analysts.

It’s a strategy that’s almost guaranteed to produce skimpy profits, and banks are not thrilled to be doing it, analysts say. But they have little choice.

“Widget companies make widgets, and banks make loans,” said Jason Goldberg, a bank analyst at Barclays in New York. “This is what they do. It is what they want to do.”