Monday, 15 February 2016

Higher interest rates could help bank stocks

Most investors look for interest rate cuts to boost stocks but for bank stocks, Bill Conerly thinks it is a rise in interest rates that would help.

For most of the past few decades, bank interest payments to depositors were about a percentage point less than treasury bill yields... When treasury bill rates fell to near zero percent, banks were unable to keep dropping the interest rates they pay depositors, as the traditional spread would have meant negative interest rates. So banks had less margin than normal...

... I am convinced that interest rates will eventually rise. Bank stocks will rebound whenever investors become convinced that interest rate hikes are near.

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