NEW YORK, (Reuters) – The U.S. banks could lose interest in U.S Treasuries as they focus on loan growth. At the same time, the Federal Reserve intends to reduce asset holdings and increase interest rates to combat inflation. Credit Suisse (SIXX:) analyst Zoltan Pzsar

The Fed’s asset purchases contributed to extraordinary liquidity and trading activity during the pandemic. However, trading revenue at Wall Street banks declined in the fourth quarter of the year as markets stabilized and the U.S. central banking began decreasing its asset purchases. This resulted in lower trading volumes.

Bank of America (NYSE) reported Wednesday a 30% increase in its quarterly profits. This was partly due to record-breaking loan growth of $50 billion.

JPMorgan (NYSE) saw a 6% rise in loan growth while trading revenues fell. Goldman Sachs was also hurt by lower trading revenues on Wednesday.

Pozsar stated in Wednesday’s report that “Our belief that bank portfolios can absorb U.S. Treasury issuing amid ample liquidity and slow loan growth”

Pozsar meant “quantitative tightening”, a reverse of Fed’s bond buying stimulus.

The potential for less long-term U.S Treasuries demand could increase yields, which have increased this month due to investors trying to adjust to the expectation that the Fed will tighten its monetary policies more aggressively in an effort to curb unabated inflation.

“We are now at a stage where banks are more interested in making loans than buying securities – and that should have the back end of the Treasury market concerned”, Pozsar said.

As banks tend to lend more money to short-term rates, rate increases and higher interest rates are expected to increase their margins.

Analysts and bank executives have stated that Wall Street banks anticipate trading revenue to be somewhere in the range of pre-pandemic levels or the highest level over the last two years.