Related: Financial ETFs Trip as Bank Earnings Fail to to Impress
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. The Fed has boosted borrowing costs twice this year with its most recent rate hike coming in June.
“A steeper yield curve, which describes a condition in which the longer-term Treasury yields rise in relation to shorter-term yields, is often considered bullish for the banks as they often lend in the longer term and borrow money in the short term,” according to CNBC. “Furthermore, Tepper pointed out that the banks look well-positioned here when it comes to their balance sheets, ‘given the fact that they all just crushed the stress tests.’”
To start the third quarter, investors have been enthusiastic about XLF, allocating over $1 billion in new money to the ETF. That more than makes up for the $317.1 million pulled from the fund in the second quarter.
For more information on the financial sector, visit our financial category.