Investors are living in a bond world. But bank stocks are enjoying a renaissance, too.
U.S. bond yields have risen at a fast clip. The yield on the 10 year Treasury rose to 1.459% in February, the largest one-month gain since 2016. The bond yield started February at 1.007%. That rise has also been good for bank stocks, since higher rates typically mean higher profits.
The KBW Nasdaq Bank Index is up 19% so far this year. The KBW Nasdaq Regional Banking Index is up 25%.
The banks’ performance is a reversal from a dismal 2020. Last year, as the coronavirus pandemic walloped the economy, banks had to set aside tens of billions of dollars to prepare for soured loans. The KBW Nasdaq Bank Index fell 14% and the regional bank index fell 12% in 2020. The S&P 500 rose 16%.
But so far, U.S. consumer spending has held up fairly well, boosted in part by expanded unemployment benefits and other government stimulus measures. Lenders also gave struggling borrowers a break on some of their monthly loan payments, especially early in the pandemic, which helped prevent widespread defaults.