Bank stocks tumble as yields falling from 14-month high pause interest-income optimism

• Bank of America, Wells Fargo and other bank stocks fell Monday as the 10-year Treasury yield declined.
• The closely watched yield tied to a range of lending programs fell about 5 basis points from a 14-month high.
• The SPDR S&P Bank ETF lost 3% on Monday, marking a second straight loss.

Bank stocks dropped Monday, with a widely watched bank ETF pulling further away from a 13-year high as borrowing costs tracked by the 10-year Treasury yield edged lower.

Bank stocks in recent sessions have been gaining as the 10-year Treasury yield and other long-dated yields rise while investors price in expectations of stronger inflation as the economy recovers from the COVID-19 pandemic. Banks seeking to lend money can see interest income improve when long-dated yields rise.

The 10-year yield, which is tied to lending programs including mortgages and auto loans, fell Monday by nearly 5 basis points to 1.68% from 1.73% on Friday when it reached its highest since January 2020.

Shares of Bank of America declined 2.6%, Citigroup fell 1.4%, JPMorgan Chase shares lost 3.3% and Wells Fargo declined by 1.7%.

Those moves also contributed to pressure on the SPDR S&P Bank ETF on Monday. It slumped 3% to mark a second straight loss. The index fell on Friday after the Federal Reserve decided to let a rule expire that relaxed capital requirements to encourage bank lending during the COVID-19 crisis. The rule change for the supplementary leverage ratio, or SLR, will expire as scheduled on March 31.

With the recent run higher in bank stocks, the SPDR S&P Bank ETF on March 12 logged its highest settlement since September 2007.

Meanwhile, the 10-year yield has climbed from around 0.9% since the start of 2021.

"While such a percentage increase in yield is dramatic from a percentage point of view the likely reality is that the move in yields may suggest that 'things' are indeed 'getting better' and pointing toward re-openings in areas of the US economy that have been shuttered or near shuttered for much of the duration since the rise of the pandemic last year," wrote John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, in a note Monday.