http://www.ft.com/cms/s/0/b4a763ba-c...#ixzz3znk77rDC
Exerts from todays article on banks...
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This manifests its worst effect on the banks through the so-called yield curve — the extra yield available on long-term bonds compared with short-term bonds. Long-dated bond yields have fallen far more sharply than shorter term interest rates as markets have given way to deflation fears. Yields on 10-year treasuries now exceed yields on two-year notes by only 104 basis points, less than at any point during the crisis year of 2008. The yield curve is at its flattest in almost nine years.
This is dreadful news for banks,....
An extra factor comes from the Bank of Japan’s decision at the end of January to move to negative interest rates on some reserves. .....
The message the market appears to have heard is that not only the BoJ but any central bank can keep stimulating the economy by cutting rates further into negative territory. Mainstream research is feeding into this, with the economics team at JPMorgan producing on Tuesday a research paper titled: “Negative policy rates: The bound is lower than you think”. Based on experience in Japan, it suggested rates could drop as low as -4.5 per cent in the Eurozone, and -1.3 per cent in the US. As rates this negative would be surpassingly hard for banks to pass on to consumers, that damages their profit outlook further.
All of this damages banks because other potential sources of profits have been closed off.....
If the US were to slip into recession, as many now speculate, this would be bad for banks’ profits.
Is there an opportunity here? Probably. ..... After such a sharp fall, some short-term rebound at some point soon is likely.
But in the longer term, the sell-off reflects risks that are real and difficult to measure. ....... There will be profits to be made from this scare at some point in the future, but there is no harm in waiting for them.
authers@ft.com