Kriti Gupta – Bloomberg/Newsroom
Happy Wednesday!
Today’s Chart of the Day shows the 10-day correlation between the Bloomberg World Banks Index and the yield on 10-year U.S. Treasuries yield as a proxy for sovereign debt yields around the world. Theoretically, you’d expect bank stocks to thrive as yields rise because they can earn more on the interest they charge for loans. A jump in rates also traditionally signals healthy growth in the underlying economy, and consequently more loans to businesses and individuals. But that correlation has suddenly turned negative to over 0.6%, signaling that climbing yields are doing more harm than good.
The nuance here is that although the outperformance of banks compared to the S&P 500 Index has mirrored the surge in rates, the flattening yield curve does hurt the group. Add in the impact of rising inflation and reduced revenues as the finance industry raises compensation to retain talent, and it’s clear the bid for banks as a play on higher rates may not work this time. Read more here on the web.
Tune into Bloomberg Surveillance at 7:45am EST and Bloomberg Businessweek Radio at 3:30pm EST for the daily segments. Feedback always welcome!
