US bank shares suffer after Treasury yields sink

Shares in US banks dropped on Tuesday, in the latest sign that the post-election reflation trading is fading, with Treasury yields coming under pressure.

The KBW banks index, which tracks America’s largest lenders, fell 1.1 per cent in early New York action.

Investors have soured on the sector as Treasury yields have fallen, and the yield curve itself has narrowed. The shape of the curve is significant since lenders borrow in the short-term and lend over longer periods, meaning that a flatter curve may pressure profits.

Bank of America was one of the best performers following Donald Trump’s election, as the curve steepened and investors bet the new administration would cut regulations. The shares shot higher by 50 per cent from November 8 – March 1. But they have since tumbled 13.2 per cent, including a 1.2 per cent fall on Tuesday.

Other large banks came under lighter pressure. Wells Fargo shed 0.75 per cent, Citigroup dropped 1.1 per cent and JPMorgan Chase declined 0.43 per cent.

Concerns have also risen that lenders’ Wall Street businesses might also notch a lacklustre run in the current quarter. Industry executives last week suggested that trading revenues were unlikely to match a strong second quarter in 2016 thanks to low market volatility.