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Interest Rate Tailwind

10 January 2018 by lberuti

All the rage in the market since the beginning of the year has been about interest rates. The upward move of US interest rates in particular got even more focus since the beginning of the week as the 10Y broke through the 2.5% level. Interest rate curves are also steeper across the board, and investors reacted pretty swiftly. Assuming banks should benefit from that move, they made them the best performing group among stocks on both sides of the Atlantic. They also pushed banks’ risk premia tighter, but the move was a tad slower to get started. That said, it gained momentum today, and Financials were clearly the out-performers in Europe, as you can see in the above grapple. If you click on the bar corresponding to Financials, you will also notice that Italian institutions have been by far the biggest winners today. Indeed, they also benefited from the overnight news that 5-star’s leader is dialling down significantly his anti-euro rhetoric, potentially making the Italian elections outcome slightly less disruptive.