After positive trial data from Pfizer and BioNTech on Vaccine, US banks are in line for windfall that widened the gap between long and short-term bond yields. Apart from big pharma, US banks are also reaping a windfall due to the news on the COVID-19 vaccine. Pfizer and BioNtech’s promise on releasing vaccine has not just triggered increase in share price but also helped push long-term interest rates high.
For years, banks have been struggling with weak interest rates. The upward turn in the bond market has analysts and bank executives look up. The positive news on the vaccine for COVID-19 offers the potential for stable economic growth in the upcoming months. This will help the businesses pickup their activity across as the restrictions are eased and will fade away after the vaccine is released. The prospect of strong growth in upcoming days seta the platform for a higher interest rates and more profitable lending banks.
Effects on rates
Stephen Scherr, Goldman Sachs’ chief financial officer, told a conference on Monday that the vaccine news “will be good for banks” by giving rise to “reflationary outcomes” and “more slope to the yield curve”.
Investors were on the case pushing up the share prices of J.P.Morgan Chase and Bank of Amercia, both of which jumped 14 percent on Monday. Regional banks like Comerica and M&T Bank also reaped big gain rising 20 percent and 25 percent respectively.
Even a 1 percent increase in today’s rock bottom rates could be boon to the bottom line of banks. According to the reports, the four large lenders in the US would get $22 billion boost in revenue if rates rise even a single percent.
The positive news on COVID-19 vaccine is also helping to boost the stock prices of businesses in various other sectors, especially in those where people gather such as restaurants, cruise ships and movie theatres.
