Banks and LT Bonds sell off
Note: This is a daily stock update and the information stands true as of 03/09/25, 09:00 CET.
Company Update:
Expert Opinion:
We all know the good way is the hard way, at least over the long run. Unfortunately, politics incentives usually mean the easy short-term way is the preferred course of action. It is therefore likely that the governments will add debt and leverage to the system, triggering further wave of inflation down the road (which is also why Gold and Bitcoin and any reserve of value that cannot be easily taxed is on the rise). At least they will probably try to, but our expert sees rising LT Yields is a message sent by the financial markets to governments and one that we should monitor carefully.
For daily updates, subscribe to our newsletter and for detailed information, reach out to us at sales@alphavalue.eu
Company Update:
The long-term rates keep rising across the world. Our analyst is sharing his thoughts regarding the potential impact of this move on the bank sector.
1- There is no direct and immediate impact on the profitability of the banks, which are very little exposed to LT bonds directly.
2- As a rule of thumb, steepening is usually favorable for the sector (banks borrow ST and lend LT).
But the key question is why the LT bonds are dropping that much. It seems correlated to the massive deficits that are being accumulated by governments around the world. And there are two radically different scenarios from here :
A/ If governments opt for austerity measures, cutting spending and triggering a recession, i.e. the hard way, this is negative for the banking sector in the short term as the cost of risk will surge and activity will drop.
B/ If they go the easy way (at least politically), this will turn into money creation and inflation going forward. In this scenario, banks are a great place to be as 1/ the sector's earnings are relatively inflation proof and 2/ banks constitute the entry point of the added liquidity, and they directly benefit from the Cantillon effect.
Expert Opinion:
We all know the good way is the hard way, at least over the long run. Unfortunately, politics incentives usually mean the easy short-term way is the preferred course of action. It is therefore likely that the governments will add debt and leverage to the system, triggering further wave of inflation down the road (which is also why Gold and Bitcoin and any reserve of value that cannot be easily taxed is on the rise). At least they will probably try to, but our expert sees rising LT Yields is a message sent by the financial markets to governments and one that we should monitor carefully.
For daily updates, subscribe to our newsletter and for detailed information, reach out to us at sales@alphavalue.eu
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