U.S. Treasury yields have been rising lately, crossing 2% for the first time since mid-2019 after the consumer price index increased 7.5% year-over-year in January, beating the Dow Jones estimate of 7.2% and marking the highest increase since February 1982. The rise in Treasury yields should help banks earn more interest income. Investors’ growing interest in regional bank stocks is evident in the SPDR S&P Regional Banking ETF’s (KRE) 15.3% gains over the past six months.
The hotter-than-expected inflation data may compel the Fed to raise interest rates aggressively in March. Higher interest rates help banks increase their profits. Lawrence Gillum, the fixed-income strategist for LPL Financial, said, “Our year-end 2022 forecast for the 10-year Treasury yield is 1.75 - 2.00%.”
