Another Sign a Rate Hike Could be Coming

Odds are increasing that the Federal Reserve could raise interest rates for the first time this year in December.

Those looking for further confirmation of that fact should look to the recent leadership displayed by exchange traded funds such as the Financial Select Sector SPDR (NYSEArca: XLF) and the iShares U.S. Financials ETF (NYSEArca: IYF).

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.

Heading into this year, many market observers expected four Fed rate hikes, a number that subsequently dropped to two and now, in the eyes of some experts, zero.

Related: Financial Sector ETFs Maintain Momentum

However, the rate hike outlook has swiftly changed in recent weeks with some bond traders seeing it as almost guaranteed a rate hike will come in December, which would be a boon for ETFs like XLF.