Banks Aren’t Sweating a Yield Curve Inversion Yet
Despite the bond market’s warning signal, higher interest rates and a return to growth in lending are expected to bolster profits this year and next.
Higher interest rates should bolster bank profits for a while.
Photographer: Carl de Souza/AFP/Getty Images
The U.S. bond market just flashed a key recession warning, but banks and their investors still have a rosy view of the world. Higher interest rates and a return to growth in lending are expected to bolster profits this year and next.
The red flag from bonds is the so-called inversion of the yield curve, where short-term Treasury yields are higher than longer-term ones, indicating that investors expect lower interest rates, inflation and growth in the future. A curve upward from low yields now to higher ones in the future suggests the opposite.