“The Federal Reserve may remove ‘patience’ from its forward guidance on rates this week, which the market may interpret as rate hikes being eminent in June,” said State Street Global Advisors Head of Research David Mazza in an email exchange with ETF Trends. “Financial services firms, such capital markets , banks (KBE), and regional banks (KRE) rank as the top 3 industries with the highest sensitivity to the 10 year yield.” [Some Bank ETFs to Bank On]
As BAML notes, “other sectors have proved greater beneficiaries of lower rates,” than financial services, but rates poised to rise, the sector could be in for an extended period of leadership.
Reminding investors of just how sensitive regional banks are to interest rate changes are these statistics. When Treasury yields jumped in 2013, KRE surged 47.5%. Amid the 2014 yield retreat, the ETF rose just 1.8% while the S&P 500 climbed 13.5%. KRE’s holdings have an average beta of +0.44 to moves in the US 10 Year Treasury.
SPDR S&P Regional Banking ETF
Todd Shriber owns shares of XLF.