The spread between 2- and 10-year Treasuries has contracted to about 1.3 percentage points, its lowest since late 2012. Consequently, the financial sector may see profitability decline as the difference between what banks make by borrowing and lending money shrinks.
The banking industry will likely experience greater gains once short- and long-term rates rise in tandem. The sector, though, could still find strength on an improving economy, expanding jobs and rising spending due to lower gas prices, which could all add to loan growth. However, without a favorable yield outlook, we could experience another tepid year for bank stocks.
Financial Select Sector SPDR
For more information on the banking industry, visit our financial category.
Max Chen contributed to this article.