Up 325% last year and more than 90% in 2021, the Direxion Daily Regional Banks Bull 3X (DPST) shares kept bullish traders happy.
The Federal Reserve has been committed to keeping interest rates where they are, but as the economy continues to show signs of improvement, that could change. Yields on benchmark T-bills are already higher, which could be a boon for regional banks.
As for DPST, it seeks daily investment results equal to 300% of the daily performance of the S&P Regional Banks Select Industry index. The fund invests at least 80% of its net assets (plus borrowings for investment purposes) in financial instruments and index securities, index track ETFs and other financial instruments offering daily exposure. leveraged to the index or ETFs that track the index.
The Index is a modified equal weight index designed to measure the performance of the stocks comprising the S&P Total Market Index which are classified in the GICS Regional Banks sub-sector. Signs of life are starting to appear in the YTD chart of the fund, with the price moving above its 50 day moving average recently.
“Investors live in a bond world,” said Wall Street Journal article Noted. “But bank stocks are also experiencing a renaissance.”
“US bond yields have been rising at a rapid rate,” the WSJ article added. “The 10-year Treasury yield rose to 1.459% in February, the biggest one-month gain since 2016. The bond yield started in February at 1.007%. The rise was also beneficial for bank stocks, as higher rates usually mean higher profits. “
Higher returns translate into higher profits
While rising yields will do bond investors a disservice, regional banks are happy to see them. The cost of money via loan products can help increase the profits of regional banks.
“Rising bond yields also help. When interest rates rise, banks can charge more on loans. This is particularly important for regional banks, ”the WSJ article explains. “Unlike the big banks, they don’t have big transactions on Wall Street, so higher rates and stronger economic growth are more important to them.”
“Although what we heard [Jerome] Powell remains rather accommodating, interest rates should continue to rise, ”said Steven Chubak, managing director of Wolfe Research, referring to the chairman of the Federal Reserve.
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