Global bank stocks experienced a decline this week following a surge in the 10-year US Treasury yield to 5.35%, the highest level recorded since 2002. Higher yields reduce the resale value of existing bond portfolios held by financial institutions, creating significant paper losses across the sector.
Data from the Federal Deposit Insurance Corporation indicates that US lenders held $326.7 billion in unrealized bond losses at the end of June. The Invesco KBW Bank ETF has fallen approximately 13% from its August peak, reflecting investor concerns regarding the impact of these devalued assets on bank capital.
European markets saw a 3.5% drop in the main bank index on October 7, with major institutions like Societe Generale, Deutsche Bank, UniCredit, and Intesa Sanpaolo each declining by over 4%. In Singapore, OCBC shares fell 5.9% following a rating downgrade by Citi, while DBS and UOB also saw price drops.
Despite these pressures, industry analysts note that current bond losses represent about 5% of bank capital, a decrease from 19% in 2023. The FDIC reports that US deposits have grown for eight consecutive quarters, suggesting that current liquidity levels remain more stable than during the collapse of Silicon Valley Bank.
Market participants are shifting toward cash, with money market funds attracting $166 billion in a single week. Investors are now awaiting the upcoming quarterly earnings reports from JPMorgan, Goldman Sachs, Citigroup, and Wells Fargo, scheduled for October 13, to assess the full impact on capital.
