Deutsche Bank (DB - Get Report) shares rose to the highest level in five weeks Tuesday as investors continue to bet that global central banks will gradually tighten policy in a way that will increase profitability for the word's biggest lenders.
Deutsche Bank shares were marked 2.8% higher by mid-day in Frankfurt and changing hands at €16.47 each, the highest since since May 29, by 4 pm local time. The shares have gained more than 9% since June 26, the day before European Central Bank President Mario Draghi hinted that the Bank may begin to taper purchases in its asset purchase program in anticipation of a change in record-low interest rates.
"The threat of deflation is gone and reflationary forces are at play," Draghi told a group of central bankers and economists in Sintra, Portugal. "And since one of the drivers of inflation today is positive supply developments, this should feed back positively into potential output rather than produce hysteresis."
"In these conditions, we can be more assured about the return of inflation to our objective than we were a few years ago," Draghi added.
The Stoxx 600 Europe Banks index, the region's benchmark, has risen 4.5% since Draghi's speech in Portugal while the European single currency has gained 1.6% against the U.S. dollar and tested 52-week highs in anticipation of faster inflation and, most importantly, a so-called steepening of the yield curve in German government bonds.
Banks are able to increase their profitability when the yield difference between short-term funding costs and longer term investment opportunities increases.
The difference between 2-year and 10-year German bund yields has risen from around 95 basis points in late June to around 105 basis points this week as investors sell longer-dated bonds in favor, pushing their yields higher.
The moves have helped paced significant gains for some of the region's biggest lenders, including HSBC Plc (HSBC) , which has risen more than 5% since the Draghi speech, while Deutsche Bank's French rival, BNP Paribas SA (BNPQY) , has risen 5.4%.
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