US bank stocks are exuberantly listening to mainstream media pushers as the hopes of a double-rate-hike-rainbow has sent S&P Financials to their highest since Dec 2015. However, despite the rise in implied rate-hike odds, the Treasury curve is utterly collapsing (which is what really matters for NIM) with 2s30s now at its lowest since 2007...
As we noted previously, the business models of pension plans, insurance companies, money managers are all affected by what happens to the yield curve, in different ways. But nobody like a Bank is so inescapably impacted by its shape.
At times, good Banks can skilfully outperform their core commodity – the yield curve - and smoothen its widest gyrations across the cycle. Like a good oil company can diversify and smoothen the violent swings of oil prices.
But can they totally disconnect from it? Unlikely.