This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Bank Stocks to Benefit From Rising Interest Rates

NEW YORK ( TheStreet) -- Bond yields are beginning to rise, which bodes well for earnings of several financials, KBW analysts said in a research note on Friday.

The yield on the 10-year treasury note has risen in the last couple of weeks to past 2.3%. Investors appear to be abandoning safe havens for more risky assets amid better domestic economic data and as expectations for additional monetary stimulus from the Fed declined.

Markets are also beginning to price in an earlier short-term interest rate hike by the Fed. On Friday, Federal Reserve Bank of Richmond Jeffrey Lacker said that the Fed may have to raise short term rates as soon as 2013 because economic conditions did not warrant keeping rates near zero for an extended period. The Fed has previously indicated that it would keep interest rates near zero until late 2014.

Uncertainty about interest rates would lead to increased trading volumes and hedging benefiting fixed income trading revenues. According to KBW analysts led by Frederick Cannon, Goldman Sachs (GS - Get Report) is best placed to benefit.

A steepening yield curve- that is a widening spread between rates on long-term bonds and short term bonds- also benefits banks that are looking to deploy excess liquidity. Astoria Financial (AF) Bank of Hawaii (BOH), City National (CYN - Get Report) Hudson City Bancorp (HCBK - Get Report) New York Community Bancorp (NYB) and Washington Federal (WAFD).

These stocks should benefit irrespective from a steeper yield curve, irrespective of what happens to short-term rates, according to the analysts.

The "more challenging investment thesis" in the analysts opinion is trying to play off expectations of rising short-term rates, because the Fed has said it is committed to keeping short-term rates low till 2014. Investors therefore need to be more cautious in their investment approach.

Still, asset-sensitive banks poised to benefit include Capitol Federal Financial (CFFN), City Holding (CHCO), City National, Huntington Bancorp (HBAN - Get Report) and Prosperity Bancshares (PB).

-- Written by Shanthi Bharatwaj from New York

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
CYN $93.07 -0.54%
HCBK $9.50 2.15%
HBAN $11.11 -1.38%
GS $197.35 -1.43%
AAPL $124.75 -1.13%

Markets

DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs