High Treasury yields push US banks to weigh selling bond portfolios as Basel III rules near

High Treasury yields are prompting US banks to rethink whether to hold or sell their bond portfolios¹. Lenders are weighing bond portfolio sales as yields put pressure on capital².

PNC executives said the bank is factoring in Basel III capital rules, which are “just around the corner,” as it evaluates its AOCI holdings¹. PNC is considering the impact of Basel III as it reviews its bond losses^2,5. Bank executives said they were taking the upcoming capital rules into account⁵.

Bank of America illustrates the pattern, with unrealized bond losses on its books³. With AOCI still negative and Basel III rules nearing, higher yields have put banks’ bond losses back in focus³.

Why it matters to investors

Unrealized losses on bonds weigh on bank capital and can constrain buybacks⁴. As Treasury yields surge, US banks face bond losses that raise risks to share buybacks⁵. That links the bond market directly to the capital returns that bank shareholders receive.

The timing of the capital rules adds to the pressure. Higher yields and Basel III may intensify the strain on balance sheets⁴. Executives describe the rules as close¹, which leaves less time to reposition portfolios before they take effect.

The comparison that hangs over the sector is the 2023 collapse of Silicon Valley Bank, which showed how unrealized losses on bonds can become a problem when yields rise⁴. The current reviews are a decision about whether to crystallise losses now or carry them while rates stay high^1,2.

What to watch

The first marker is whether banks announce sales of securities from their portfolios. Executives are weighing such sales², and any move would turn unrealized losses into realized ones.

The second is buyback guidance. Bond losses that reduce capital raise risks to share repurchases⁵, so changes to buyback plans would show how banks are balancing capital against returns to shareholders⁴.

The third is the final form and timing of the Basel III capital rules. PNC says they are “just around the corner”¹, and banks are taking them into account in their decisions on AOCI². The path of Treasury yields will set the size of the losses that those decisions involve³.