Bank Hedges Highest in Two Years on Rates, Crude Concern
Two things that would boost profits for banks are higher interest rates and a rebound in oil prices. Options traders are speculating neither is coming anytime soon.
Demand for options that protect against future losses in shares of an exchange-traded fund tracking financial firms in the Standard & Poor?s 500 Index (SPX) rose to the highest level in more than two years relative to bullish ones, according to data compiled by Bloomberg. Puts on the ETF make up seven of the top 10 options with the highest ownership, the data show.
The lowest crude oil prices in five years and falling bond yields may weigh on earnings for financial firms. With the Federal Reserve pledging patience on the first rate hike since 2006, banks like JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C) will have to wait for a policy decision that will eventually help boost lending income, according to Robert Pavlik of Banyan Partners LLC.
?You want to see a strengthening interest-rate environment for banks, especially with the potential exposure to what?s going on overseas,? Pavlik, who helps oversee $4.5 billion as chief market strategist at Banyan Partners in New York, said in a phone interview. ?When you see the action on the 10-year Treasury and interest rates going the wrong way, it certainly doesn?t help financials.?
To Read More Click Here.