Magazine article American Banker

News of Rise in Housing Starts Helps End Bank Stocks' Spree

Magazine article American Banker

News of Rise in Housing Starts Helps End Bank Stocks' Spree

Article excerpt

Bank stocks' recent rally came to an abrupt halt Thursday morning after the Commerce Department reported unexpectedly strong demand for the construction of new homes in April, depressing the 30-year Treasury bond.

In the last eight trading days through Wednesday, the Standard & Poor's index of major banks rose 5.6% amid signs of modest economic growth. The broader S&P 500 rose 3.8% in the period .

But on Thursday, the S&P bank index fell more than 1% in early trading, and ended down 0.24%.

The Commerce Department report came as a shock because this spring's rise in interest rates was expected to impede orders for new homes - known as housing starts.

A survey of 14 economists by Dow Jones published on Tuesday predicted that figure would decline 1.6%. In March, it declined 5.2%.

But the Commerce Department reported housing starts actually rose in April, by 5.9% for an annualized rate of 1.52 million units - the highest level in more than two years. Signs of rapid economic improvement spark fears of inflation, which saps the value of bonds.

As a result, the yield on the 30-year Treasury bond had risen 7 basis points to yield 6.92% during late afternoon trading, while its price, which moves in the opposite direction, had fallen nearly two points.

Bank stocks, which are commonly viewed by investors as interest-rate sensitive, usually decline when Treasury yields rise.

"We have been through this economic drill before," said Michael Mayo, a bank analyst with Lehman Brothers. …

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