The financial sector and bank exchange traded funds (ETFs) jumped Wednesday on a steepening yield curve ahead of the Federal Reserve announcement.
The SPDR S&P Regional Banking ETF (NYSEArca: KRE), the largest regional bank ETF, which have been thirsting for higher interest rates, increased 3.2% Wednesday. The fund also broke above its long-term resistance at the 200-day simple moving average.
The iShares U.S. Regional Banks ETF (NYSEArca: IAT) and PowerShares KBW Regional Bank Portfolio (NYSEArca: KBWR), which both include greater tilts toward smaller banks, gained 3.0% and 3.3%, respectively. IAT and KBWR were also trading back above their long-term trend lines as well.
Related: Struggle and Trouble Ahead for Bank ETFs?
Additionally, the SPDR S&P Bank ETF (NYSEArca: KBE) and PowerShares KBW Bank Portfolio (NYSEArca: KBWB), which lean toward larger companies, rose 3.1% and 2.9%, respectively. KBWB follows a market cap-weighted index, which make the index heavy on prominent banking names. KBE, on the other hand, tracks an equal-weight indexing methodology, so the ETF will include a greater tilt toward mid-cap banks.
Meanwhile, the broader Financial Select Sector SPDR (NYSEArca: XLF), which includes a 33.8% tilt toward banks, added 1.7% Wednesday.
Bank stocks strengthened as longer-dated Treasury yields rose in anticipation the Fed will begin another round of interest rate hikes. Yields on 2-year Treasuries rose 2 basis points while yields on benchmark 10-year notes gained 6 basis points before the Fed announcement.
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