The theme does not include the systematically important US mega banks > $100 bn, which form a category apart by virtue of their size and risk controls to which they submit
The current interest rate range targeted by the Fed is 4.25%-4.5%, unchanged since December18th 2024, considering uncertainty of future inflationary trends
The core PCE price index, the Fed’s preferred yardstick, remains stuck around 2.5% (year-on-year) as of May ’25 data, with Services the main inflationary factor (+3.7%) and Housing (+4%) both on a downward trend
Negative anticipations for inflation, due to new higher US tariffs among other factors (such as energy), could delay a reset of the Fed rate further
The collapse of SVB – Silicon Valley Bank – in March '23, following a bank run, highlighted the sensitivity of Treasury holdings to rate hikes – the higher the rates go, the lower current market value of the invested bonds, commanding lower asset values to refund cash deposits
All banks hold 10-year Treasury notes in large amounts – over time the safest asset category – but the ‘temporary inflation bout’ storyline on which the U.S. banking system has been built, is not so 'temporary' anymore, keeping the 10-year yield at 4.3/4.4%
Major exposure involves the regional banks who stand to benefit if the 10-year bond yields start to fall along with inflationary trends
A benchmark of the theme, the share price
The KBW index is a modified-market capitalization-weighted index of companies primarily engaged in US banking activities
The Index is compiled, maintained and calculated by Keefe, Bruyette & Woods, Inc. and Nasdaq, Inc. and is composed of large national US money centers, regional banks and thrift institutions that are publicly traded in the US
