Regulatory Reversal Could Spark Surge in 10-Year Treasury Demand

May 19, 2025

U.S. banking regulators are considering a major shift that could reshape how the nation’s largest financial institutions manage risk—and it may drive increased demand for 10-year U.S. Treasury bonds.

At the center of the proposal is a potential rollback of a Trump-era rule that allowed big banks to exclude unrealized losses on government securities from their capital calculations. If reversed, the new rule would require banks to include these paper losses—such as those resulting from rising interest rates—when assessing their financial cushion, also known as capital adequacy.

This move comes amid renewed regulatory scrutiny following the collapse of Silicon Valley Bank and other regional lenders in 2023. Those failures exposed vulnerabilities in the way banks manage interest rate risk, especially when it comes to holding long-dated Treasuries that lose value as rates rise.

If adopted, the regulation could push banks to rebalance their portfolios in favor of safer, more liquid assets to ensure they meet stricter capital requirements. One likely result: a spike in demand for long-term Treasuries, particularly the benchmark 10-year note.

Higher demand for these bonds could push yields lower, which would ripple through the economy by potentially lowering borrowing costs for everything from mortgages to corporate loans. It would also tighten liquidity conditions and change how banks approach asset-liability management.

While the proposal has yet to be finalized, it signals a broader regulatory trend toward strengthening the financial system’s resilience in the face of market volatility. For investors, lenders, and policymakers alike, the implications of this shift could be far-reaching—especially in an environment where interest rates and risk management are front and center.