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Bank Stocks Are Paying a Price for Rising Bets on Higher Rates

  • Correlation between lenders, 10-year yields turns negative
  • Fed, ECB rate hikes threaten loan demand, bank revenues

Bank stocks are becoming less attractive to investors as the global bond market prices in the rate hikes that are coming in 2022.

Today’s Chart of the Day shows the 10-day correlation between the Bloomberg World Banks Index and the yield on 10-year U.S. Treasuries yield as a proxy for sovereign debt yields around the world. Theoretically, you’d expect bank stocks to thrive as yields rise because they can earn more on the interest they charge for loans. A jump in rates also traditionally signals healthy growth in the underlying economy, and consequently more loans to businesses and individuals.