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A steeper yield curve provides the motivation for banks to encourage customers to borrow, and is typically associated with a strengthening economy.
Small-cap financial stocks are also very interesting, because they have about four times the sensitivity to a steeper yield curve than large-cap financials.
And a steeper yield curve is a boon for banks looking to earn their way out of trouble through fat net interest margins.
With the market divided on whether the Bank of Japan would increase stimulus or cut rates further, Governor Kuroda decided to think outside the box and scrapped their set monetary base goal with the intent of targeting yields of various maturities, thereby creating a steeper yield curve.
Inflationary worries are expected to send interest rates higher again (which has also muted hopes of an earnings boost from a steeper yield curve, the difference between long- and short-term interest rates).It is not in banks' interests to send their borrowers to the wall, of course, but their ability to be flexible is more limited because of the credit crunch.
A steeper yield curve translates into wider profit margins for lenders.
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Banks, after all, gain from a steep yield curve.
In the early 1990s, after the last big crisis, it engineered a steep yield curve for years, helping banks to recover.
After America's previous banking crisis, in the early 1990s, a steep yield curve helped banks to earn good profits at low risk.
Because of the wide gap between low yields in short-term issues and higher yields in longer-term ones — what's known as a steep yield curve — Mr. Pagliocco is using a barbell strategy.
When long-term interest rates are substantially higher than short-term rates — a situation known as a steep yield curve — banks should be able to profit by borrowing cheaply in the short term and lending for longer periods at higher rates.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com