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.
Financial entities like banks will benefit from expanding margins as rates climb. A rising rate environment may reflect a strengthening U.S. economy, and a healthier economy would help borrowers have an easier time repaying loans, with banks stuck with fewer non-performing assets. Moreover, rising rates means that banks will generate greater revenue from the spread between what they pay deposit savers and the prime rates they charge credit-worthy clients and other highly-rated debt.
“Jefferies is viewed by analysts as a bellwether for bigger Wall Street investment banks, because its operations are similar to theirs (though less so for consumer banks). The bank’s earnings period is slightly different from that of Wall Street investment banks. Jefferies’ most recent quarter concluded May 31, while the big banks’ fiscal second quarter will conclude at the end of June,” according to CNBC.
For more information on the financial sector, visit our financial category.
iShares US Broker-Dealers & Securities Exchanges ETF