Magazine article American Banker

Bank Stocks Surge on News of Two Rate Hikes Overseas

Magazine article American Banker

Bank Stocks Surge on News of Two Rate Hikes Overseas

Article excerpt

Investors drove up bank stocks and other financial stocks more than 1% Thursday, taking their cue from a rally in U.S. Treasury bonds.

The American Banker index of the top 50 U.S. banks rose 1.4%; the American Banker 225 climbed 1.1%.

Long-term bonds rallied on news that the Bank of England and the European Central Bank had raised interest rates. Though the moves were expected by the markets, the rate hikes abroad were another favorable sign to investors that the Federal Reserve will not raise rates at the Nov. 16 meeting of the Federal Open Market Committee, its policy-setting arm.

If the British and European Union rate increases cool demand at home, this also would reduce inflationary pressures in the United States, economists said.

Thursday's rise in financial stocks "is related to the expectation that the Fed is less likely to raise interest rates," said Sung Won Sohn, senior vice president and chief economist for Wells Fargo & Co. in Minneapolis. He said the hikes in Europe are more evidence that would dissuade the Fed from raising interest rates.

The European Central Bank announced Thursday that it raised its refinancing rate to 3%, up from 2.5%, and the Bank of England bumped up its benchmark rate to 5.5%, from 5.25%.

Yields on 30-year U.S. Treasuries fell 3 basis points, to 6.10%. Many investors' decisions on whether to buy bank stocks are based on the yield on Treasury bonds. When bond yields fall, as they did Thursday, the tendency is to buy bank stocks. …

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