With a steepening yield curve, or wider spread between short- and long-term Treasuries, banks could experience improved net interest margins or improved profitability as the firms borrow short and lend long.
“A bull steepener (steepener with lower rates) is more accretive to bank earnings than a bear steepener, but either is better than a flattening curve for bank margins, all else equal,” Bespoke Investment Group Macro Strategist George Pearkes told Bloomberg. “The market has basically decided that banks equal a leveraged steepener so when the curve flattens they’ve underperformed and vice versa.”
Moreover, the financial sector received a boost from Presidential candidate Donald Trump after he proposed dismantling nearly all of Dodd-Frank, the package of financial reforms placed after the depression.
“Dodd-Frank is a very negative force, which has developed a very bad name,” Trump told Reuters.
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SPDR S&P Regional Banking ETF