FINSUM + Magnifi: Bank of America Warns Investors of Bond Market Correction
April 23, 2021
After a consistent rise in yields in late February and March rates are finally falling as the 10-year
treasury yield sits just over 1.5%. This is mainly coming from the fact that markets are softening to
the recovery and at peace with above-average growth and steering towards full employment by
2022. However, economists at Jefferies are predicting faster growth and lower unemployment
and markets having to re-adjust. This means spikes in 3 and 5-year T-bill yields. Deutsche Bank is
taking a leaning toward a different scenario. Where the Fed outpaces the economy, it is causing too
much wage inflation and causing higher unemployment and sinking yields. Bank of America
likewise warned that the recent fall in yields was not sustainable and the trend will be higher.
Income investors will want to keep their eyes on economic data to see which scenario is playing
out in real-time.
FINSUM + Magnifi: Why Financial Stocks Will Rally Big
March 2021
Eyes and ears have been on the Fed as the bond market still is unsure of the future of inflation, but it
was a different Fed announcement that had the market moving on Thursday. The Fed announced that
pending stress tests, the restrictions put on dividends and share buybacks will be lifted this summer. The
measures were put on banks to ensure financial security through the crisis. If banks fail to meet the capital requirements imposed by the Fed, then the restrictions will continue. Banking stocks ticked up
on the news as S&P Bank ETF KBE rose 2.8% on the announcement.
FINSUM + Magnifi: Fear rising inflation? Here’s How to Play It
(February 2021)
Inflation concerns are on the rise. The Fed has reacted with large unprecedented moves to the Covid-19 recession. The Biden administration is coming out of the gates swinging with a proposed $1.9 trillion stimulus package, that even has debt dove Larry Summers, former secretary of the Treasury for Democrat Bill Clinton, voicing fears of inflation's return. It’s not just talking heads either, the data can speak for itself. Treasury yields are on the rise and the 10-year-break even inflation rate reached a 6-year peak. Generally speaking, the banking sector is speaking to the same tune as the Fed, and given the Fed isn’t stepping off the gas pedal the SPDR regional banking ETF (KRE) is a way investors can align themselves with Fed’s zeitgeist. The regional banks are in tune with the local loan markets and are more responsive to policy than the day-to-day financial news cycle. KRE is trading at $61.83, by buying a $61 put option for $4.40 and a $65 call option for $3.90 in June, investors can bet that the Fed and the Biden administration are going to hold steadfast until they “see the whites of the eyes of inflation”.
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