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Morning Notes — Bond Yields

Bond Yields

June 16, 2021

Set up: This week’s weaker guidance from JPM and C may set the stage for an oversold reversal as Fed stress test results in ‘late June’ should act as a clearing event for large cap banks to accelerate buyback plans.  Banks no longer need Fed approval for buybacks if they pass the Fed’s new stress test metric, the Stress Capital Buffer (SCB).  A return of shareholder capital sounds more appealing when you consider large cap are currently overflowing with excess capital.  Expect buybacks to increase ~70% in the second half of the year with total capital returns (buybacks and dividends) exceeding normalized EPS (ex-reserve releases) by ~100%.  Trust banks have the most excess capital.

Dots: Ten-year Treasury yields are higher (now 1.526% but closing levels matter more) after the updated Fed dot plot (just released) signaled members now expect two rate hikes by the end of 2023.  Higher yields generally provide a tailwind for value equity sectors, but the ~1.59% level with curve steepening would make it official.  

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