Bond yields rose as investors looked beyond discouraging data from China and focused on trade talk optimism and stimulus prospects in the struggling Eurozone. Investors have thus exited bond proxies, including utilities, real estate, telecom and consumer staples. Meanwhile, banks rallied on expectations to benefit from a rise in benchmark bond yield.
Bank Stocks in Broad Rally
Bank stocks, recently, scaled northward mostly on a jump in longer-term Treasury yields. While the broader Financial Select Sector ETF (XLF) increased 1.5% in the last trading session, the SPDR S&P Bank ETF (KBE) climbed 3%. Notably, shares of big banks, including Bank of America, Citigroup, Wells Fargo, J.P. Morgan Chase, KeyCorp and Regions Financial, went up more than 2%.
Meanwhile, the yield on the 10-year Treasury bond increased 8 basis points to 1.632%, its highest level since Aug 13. At the same time, the yield on the 30-year Treasury note advanced 8.8 basis points to 2.109%, its highest level since Aug 13. Needless to say, an uptick in long-term yields boosts banks’ profit margin as it increases the spread between what banks earn by funding longer-term assets, such as loans, and shorter-term liabilities.
Why Treasury Yields Are Rising
Treasuries are under immense pressure, pushing yields up as investors shrugged off weak Chinese economic data and focused on gradual de-escalation of trade war between Washington and Beijing, and potential stimulus measures ahead of this week’s European Central Bank (ECB) meeting.
Thanks to the trade war, China’s global exports dropped 3% to $214.8 billion in August compared to a year ago while imports increased 1.7% to $180 billion. But, imports remained down 5.6% for the first eight months of 2019 compared to a year ago and exports were off 1%.
Nonetheless, progress in U.S.-China trade talks eased investors’ concerns. Last week, China made a peace proposal over the phone and has agreed to purchase U.S. agricultural commodities. This report follows the Trump administration’s move to postpone tariffs on Chinese products on Sep 1.
Trump’s 10% tariffs on $300 billion of Chinese imports might go into effect on Dec 15, possibly a move to buttress the holiday shopping season. Trump claimed that “we are doing this for Christmas season, just in case some of the tariffs would have an impact on U.S. customers. Just in case they might have an impact on people, what we've done is we've delayed it so that they won't be relevant to the Christmas shopping season.”
Meanwhile, ECB President Mario Draghi is set to release an array of stimulus to shore up economic growth. Primary among them will be interest rate cut that widens the difference between borrowing cost in the Eurozone and other parts of the world. What’s more, Draghi before handing over the reins of the central bank to Christine Lagarde is widely expected to initiate a large QE program of asset purchases of up to 40 billion euro per month for the next year.
5 Best Bank Stocks to Buy Now
We have, thus, selected five solid bank stocks that are poised to gain from rise in bond yields. These stocks boast a Zacks Rank #1 (Strong Buy) or 2 (Buy).
BCB Bancorp, Inc. BCBP operates as a bank holding company for BCB Community Bank, a state-chartered commercial bank that provides banking products and services to businesses and individuals in the United States. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 1.7% over the past 60 days. The company’s expected earnings growth rate for the current year is 17.8%, more than the Banks - Northeast industry’s projected rally of 7%. Bridgewater Bancshares, Inc. BWB operates as the bank holding company for Bridgewater Bank that provides banking products and services to commercial real estate investors, small business entrepreneurs, and high-net-worth individuals in the United States. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 4% over the past 60 days. The company’s expected earnings growth rate for the current year is 13.2%, more than the Banks - Northeast industry’s estimated rally of 7%. Customers Bancorp, Inc. CUBI operates as the bank holding company for Customers Bank that provides financial products and services to small and middle market businesses, not-for-profits, and consumers. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 2.1% over the past 90 days. The company’s expected earnings growth rate for the current quarter is 17.7%, more than the Banks - Southeast industry’s expected rally of 6.6%. You can see the complete list of today’s Zacks #1 Rank stocks here. First Bancorp ( FBNC Quick Quote FBNC - Free Report) operates as the bank holding company for First Bank that provides banking products and services for individuals and small to medium-sized businesses, primarily in North Carolina and northeastern South Carolina. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved 2.3% north over the past 60 days. The company’s expected earnings growth rate for the current quarter is 8.1%, more than the Banks - Southeast industry’s projected rally of 6.6%. Great Southern Bancorp, Inc. GSBC operates as a bank holding company for Great Southern Bank that offers a range of financial services in the United States. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 5.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 2.8%, more than the Financial - Savings and Loan industry’s projected rally of 2.5%. More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>