GM. This is Milk Road Macro, the newsletter that’s stepping into 2026 like a banker finding a trillion-dollar parking spot.
Here’s what we’ve got for you today:
- ✍️ Everything you need to know about the next “sneaky liquidity tool”.
- 🎙️ The Milk Road Macro Show: 2026 Macro Outlook: The Market Is Sending a Warning After a 3-Year Rally w/ Mark Newton.
- 🍪 Trump has promised “aggressive” housing reform in 2026.
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Prices as of 10:00 AM ET.
EVERYTHING YOU NEED TO KNOW ABOUT THE NEXT “SNEAKY LIQUIDITY TOOL”
U.S. regulators are quietly rolling a sneaky new “liquidity tool” - by tweaking regulations at banks.
Markets are all about liquidity - and specifically liquidity within the huge Treasury market (U.S. Government debt).
Somebody needs to buy the government’s massive and ballooning pile of debt.
In recent years, the Federal Reserve has been involved with helping to add liquidity into markets - through buying Treasuries.
But now, it looks like commercial banks are being leaned on to add liquidity.
And more liquidity is generally good news for risk assets like stocks and bitcoin.
So, what’s going on?
Let’s take a look…
So, what are the changes?
Starting in January - with the rules fully kicking in on April 1 - the government is changing how banks measure their leverage, specifically through something called the enhanced Supplementary Leverage Ratio (eSLR).
In plain English - the eSLR limits how much “stuff” banks can keep on their balance sheets.
Right now, all large banks have to hold the same extra amount of capital no matter how risky their assets are.
That means they’re required to hold as much capital against a “super-safe” Treasury bill as against a much riskier loan.
So Treasuries “take up space” on a bank’s balance sheet and this might be disincentivising banks from holding Treasuries.
Regulators have agreed this doesn’t make sense and have made changes.
So, what’s changing?
Starting in 2026:
- Mid-sized and large banks will see their leverage ratio fall from roughly 5% to around 3.5 - 4.25%.
- Subsidiaries of these banks will also see their leverage rules cut substantially (from 6% down to roughly the same 3.5 - 4.25% range).
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EVERYTHING YOU NEED TO KNOW ABOUT THE NEXT “SNEAKY LIQUIDITY TOOL” (P2)
And what does this actually mean?
This eSLR change means that banks won’t be punished as heavily for holding “safe” assets anymore.
This frees up space on their balance sheets and lets them play a bigger role in keeping markets running smoothly.
Why does this matter?
Banks will suddenly have a lot more room to buy and trade Treasuries.
They may also have more room to do things like:
- Offer loans.
- Help hedge funds and investors with daily financing.
- Keep markets running smoothly.
Think of it as clearing out space in a garage that was too full.
Now banks have room to park more cars.
How much more room?
According to some estimates, potentially quite a lot:
- Up to $1 trillion more room for “safe” activities like buying and trading Treasuries.
- Potentially $300 billion more room for regular lending.
Bottom line
The rule change might:
- Incentivize banks to soak up a bigger supply of Treasuries.
- Increase overall market liquidity.
- Help keep borrowing costs lower in 2026.
- Potentially give banks more capacity to engage in “riskier” activities.
It’s a quiet but potentially powerful shift that regulators hope will “grease the system” and could provide a meaningful amount of “extra liquidity”.
But will policymakers go further?
This relatively moderate eSLR change is coming in early 2026.
But policymakers may go even further in the future.
Fed Governor Stephen Miran, a key Trump-aligned voice, is calling for Treasuries to be completely removed from the leverage ratio rules.
In practice, that would mean banks no longer need to hold any capital against their Treasury holdings.
This would massively incentivise banks to accumulate huge amounts of extra Treasuries and free up a lot of balance sheet capacity to fund riskier activities.
This could, in the most extreme case, be thought of as “infinite leverage” for banks to hoover up Treasuries.
Functionally, it would be a regulatory form of Yield Curve Control (placing a “ceiling” on Treasury yields) by making Treasuries “capital-free” assets.
Wrapping up
Policymakers are clearly keen to attempt to add more liquidity into markets.
Somebody needs to buy the government’s huge pile of debt.
And it looks like regulators want commercial banks to do the heavy lifting.
In turn, more liquidity is generally good news for risk assets of all stripes (stocks, bitcoin etc).
The eSLR change is a relatively big move - but it’s not a “liquidity bazooka” and it’s not entirely clear whether banks will actually want to hold more Treasuries, even if they have the regulatory space to do so.
The “big liquidity bazooka” might be if Miran’s more drastic proposal is adopted.
That’s it for this edition - catch you in the next one.
MARKET SIGNALS YOU NEED TO SEE 📉
In today’s episode, we sat down with Mark Newton of Fundstrat to talk about what 2026 might really look like after the market’s 3-year rally.
Here’s what you’ll hear:
- Why Mark sees a “choppy but positive” year ahead, not a crash.
- The sectors he’s favoring (and avoiding) as cycles shift.
- What’s next for AI stocks, energy, crypto, and gold.
- How to position for mid-year volatility and a late-2026 rebound.
It’s a banger of an episode, don’t miss it 👇
YouTube | Spotify | Apple Podcasts
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BITE-SIZED COOKIES FOR THE ROAD 🍪
2025 was a wild year for the U.S. stock market - with a 20% decline earlier in the year before the S&P 500 ended the year up more than 17%. But the gap between winners and losers was huge.
2025 also saw one of the best years for precious metals in decades. Both gold and silver soared - with Josh Phair, of Scottsdale Mint, proclaiming “we’re in a metals war”.
President Donald Trump has promised “aggressive” housing reform in 2026 - as the housing market is plagued by high costs and limited supply. So what measures can be taken?
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