The month of June has been tumultuous for the market. Right from the beginning, concerns over the global economy have been high. The Fed stopped short of hiking rates and speculation over Brexit triggered panic among investors. They flocked safer havens like government bonds and consequently, a lot of buying in the month raised bond prices and dragged down yields.
In fact, the yield on the U.S. 10-Year Treasury, which stands as a benchmark rate for several consumer and corporate loans, touched record lows. Yields on 30-year U.S. Treasuries or long bonds also plummeted.
Finally, the referendum by the Britons to exit the European Union did happen later in the month and that made economists warn of subdued global economic growth in the days ahead. Also, chances of any rate hike this year by the Federal Reserve seemed to be off the table following Brexit.
Coupled with these, anticipation of exceptional stimulus from the major central banks kept demand for bonds up and pushed its yields low. As a result, the 10-year note closed at 1.46% on Jul 1 session against 1.49% a day earlier, while yield on the 30-year bond dived to 2.24% compared with 2.30%.
Importantly, as per an index compiled by Bank of America Merrill Lynch, Treasuries posted a 2.325% total return in June, the highest return in 17 months, and easily surpassed the S&P 500’s 0.26% return.
Financial Sector to Bear the Brunt
No doubt, this low rate environment is a boon for borrowers. But the global financial sector is suffering. This has also taken a toll on the domestic financial sector as several industries including insurance, banking, brokerage and asset managers tend to incur loss from a low rate environment.
This is because a low rate lowers the prospect of a bank to experience any improvement in net interest margin, which represents the difference between deposit rates and lending rates, and make some quick gains. For insurance companies as well, such an environment cuts insurance firms’ ability to invest their new premium income in higher yielding securities, leading to lower future returns. Moreover, brokerage firms earn interest income on un-invested cash in customer accounts. So, a low rate spelt trouble for their investments.
Finally, in this environment, not all financial stocks are equally battered. Some have suffered more and some less. Below we point out five key financial stocks with a Zacks Rank #4 (Sell) in the S&P 500 that have severely felt the pain in an awful bond rate environment.
The Charles Schwab Corp. (SCHW - Free Report) , headquartered in San Francisco, CA, provides a full-service investing experience to customers. It offers wealth management, securities brokerage, banking, money management, custody, and financial advisory services through various channels. The stock’s price moved southward in the past four weeks by 15.74%.
Unum Group (UNM - Free Report) , based in Chattanooga, TN, is a provider of financial protection benefits in the United States and the United Kingdom. Unum’s portfolio includes disability, life, accident and critical illness coverage. The stock’s price decreased 12.83% over the past four weeks.
Headquartered in Cleveland, OH, KeyCorp. (KEY - Free Report) is an integrated multi-line financial services company. Its subsidiaries provide a wide range of investment management, retail and commercial banking, consumer finance and investment banking products and services to corporate, individual and institutional clients. The stock plummeted 14.64% over the past four weeks.
Chicago, IL-based Northern Trust Corp. (NTRS - Free Report) is a multi-bank holding company with worldwide locations and is a provider of treasury management, master trust, custody, retirement, risk and performance, international and investment management services for corporations, large institutions and individuals. The stock’s price dropped 11.02% over the past four weeks.
MetLife, Inc. (MET - Free Report) , based in New York, NY, is a leading provider of insurance and financial services to a broad spectrum of individual and institutional customers. The company experienced an 11.83% decrease in price in the past four weeks.
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