Correlation Between Banks and 10s Breaking Down

Apollo Chief Economist

It used to be the case that higher long-term interest rates were positive for banks because higher long rates meant wider net interest margins.

But since the Fed started hiking rates last year, this correlation has broken down, see chart below.

Now higher rates are negative for banks because it has a negative impact on their assets, and higher rates and an inverted yield curve increase the risks of a recession and hence credit losses.

Source: Bloomberg, Apollo Chief Economist

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