After long, low interest rate-induced slumbers, regional bank exchange traded funds have been awakening, cementing their resurgence with a batch of 52-week highs today.

To this point in Tuesday’s session, just under 40 ETFs have made new 52-week highs. Three of those funds are the SPDR S&P Regional Banking ETF (NYSEArca: KRE), the largest regional bank ETF; iShares U.S. Regional Banks ETF (NYSEArca: IAT) and the PowerShares KBW Regional Bank Portfolio (NYSEArca: KBWR).

Recent outperformance by regional bank ETFs is notable. Over the past 90 days, Financial Select Sector SPDR (NYSEArca: XLF), the largest financial services ETF, is up 2.4%, but the aforementioned trio of regional banks have returned an average of 6.4% over the same period. The regional bank ETF resurgence has, not surprisingly, coincided with rising Treasury yields.

“The low rates, which have stuck around longer than many expected, hurt bread-and-butter lenders who gather deposits and make loans. The reason: Such banks, although flush with deposits, can’t earn a high enough rate on loans to boost their profit margins,” reports Peter Rudegeair for the Wall Street Journal.

Over the past three months, 10-year Treasury yields have jumped nearly 10%. KRE confirms the advantage of rising rates for regional bank ETFs. Last year, the SPDR fund rose less than 2% after soaring about 47% in 2013. The iShares fund (IAT), by contrast, returned 7.5% last year after a 38% gain the prior year,” according to the Wall Street Journal. KRE’s holdings have an average beta of +0.44 to moves in the US 10 Year Treasury. [These Regional Bank ETFs Aren’t Twins]

An improving U.S. economy could foster increased borrowing and financing by businesses, large and small, across the U.S. while benign mortgage rates could also provide a lift to the mortgage lending operations of regional banks.

Subscribe to our free daily newsletters!
Please enter your email address to subscribe to ETF Trends' newsletters featuring latest news and educational events.