US-China Trade Truce Lifts Treasury Yields: Buy 5 Bank Stocks

President Trump recently said that both the United States and China have reached an agreement to ease trade tensions by delaying tariff hikes that were set to kick in this week. Trump told reporters at the Oval office that the Washington and Beijing reached a “substantial, phase-one” deal to ease trade tensions.

As part of this new phase, China will be purchasing between $40 billion and $50 billion U.S. agricultural commodities. Trump also said that to some extent foreign-exchange issues with China have been sorted. The pact will surely discourage China from devaluing its currency.

Meanwhile, the United States has agreed to hold off tariffs that were set to take effect on Oct 15. What’s more, the United States may lessen exports bans on blacklisted Chinese telecom behemoth Huawei Technologies Co. Treasury Secretary Steven Mnuchin also sounded optimistic and said that both the sides have struck an “almost complete agreement” over trade and currency disputes.

Investors have been eagerly waiting for some encouraging news on the trade front. Lest we forget, a flurry of headlines raised doubts about whether the U.S.-China trade talks will be fruitful. Both Washington and Beijing were supposed to resume talks with import tariffs set at $250 billion worth of Chinese commodities at a rate of 30%. But, chances of successful trade talks diminished after the Trump administration blacklisted 28 Chinese companies, including AI firms, over human rights concerns.

Nonetheless, hopes of at least a limited U.S.-China trade deal helped the stock market scale northward. The Dow jumped more than 300 points on Oct 11, helping the blue-chip index put an end to a three-week losing streak. The S&P 500 and the Nasdaq a ended the week in the green.

Among the sectors, tech and chipmakers rose significantly.

Most importantly, bank stocks gained traction. Shares of bank stocks moved north as U.S. treasury yields rose. As investors took money out of bonds and opted for stocks, bond prices declined, leading to an uptick in yields. Needless to say, a rise in long-term yields boosts banks’ profit margin as it increases the spread between what banks earn by funding longer-term assets, such as loans, and shorter-term liabilities.

Meanwhile, the yield on the 10-year Treasury bond rose 9.9 basis points to 1.748%, a three-week high. At the same time, the yield on the 30-year Treasury note advanced 6.4 basis points to 2.210%, extending a weeklong climb of 19.3 basis points.

5 Best Bank Stocks to Buy Now

We have, thus, selected five solid bank stocks that are poised to gain from rise in bond yields. These stocks boast a Zacks Rank #2 (Buy).

First Financial Bankshares, Inc. (NASDAQ:FFIN) provides commercial banking products and services, primarily in Texas. The Zacks Consensus Estimate for its current-year earnings has risen 0.8% over the past 90 days. The company’s expected earnings growth rate for the current year is 10.1%, more than the Zacks Investment Research

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Written By: Zacks Investment Research