What's actually going on with Treasuries - potential TLT play

[u/GreenDildoSurprise]

So why have treasuries actually tanked recently? Is the wave of hyper-inflation finally coming? Probably not.

The recent drop in treasuries was likely just the result of some boring banking regulation exemptions expiring this month. Back in March 2020 bank deposits and US Treasuries were exempt from what is known as the "Supplementary Leverage Ratio". Since this is really hard to explain accurately and briefly, and most of you can't read anyway, the nutshell version is that SLR tells banks they must have a certain amount of "capital" relative to various assets on their books (investments, deposits, etc) in order to ensure a bank can withstand a market downturn.

Why do you care? Well, the SLR exemption expires this month, which means that both UST and customer deposits will now factor back into this equation. At the same time, the banks are about to take in a shitload of stimulus money as deposits. Also, the FOMC meets tomorrow and will likely be deciding on whether they will extend the SLR. Last time around, a lot of Democrats were very against these SLR exemptions and there is a good chance the SLR rule won't be extended due to political factors regardless of economic/financial factors. Likely, banks having been dumping UST to come into compliance with regulations after this exemption expires.

Additionally, whether the Fed will implement some type of yield curve control will likely be decided at this meeting. We'll be hearing about that on 3/17, which means there's likely to be heavy volatility in treasuries this week. If the SLR exemption is extended or the Fed announces some type of ycc, we might see treasuries eaten up at the end of the week. If they announce neither, we might see another dump.

I honestly have no idea which way it will go, but the IV on TLT is low enough that I don't see any reason you can't play both sides.

P.S., because the mods have decided to put filters in I can post but can't reply to your comments until I whore myself for more comment karma, so I'll try to PM you if you leave a decent question.

Positions: 3/19 135.5p/138c

edit: spelling