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Why Financial Stocks Took a Hit with the Surge in Long-End Treasury Yields

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One of the biggest stories in the financial world this week was the sudden surge in long-end Treasury yields. The 10-year Treasury yield closed on Friday at 4.94%, a significant increase from 4.61% just a week ago. On Thursday, it even reached a session high of 5%, its highest level since July 2007.

The rise in long-term Treasury yields had a noticeable impact on financial stocks, causing them to slide. The Financial Select Sector SPDR ETF (NYSEARCA:XLF) experienced a 3.0% drop during the week ended October 20, which was steeper than the 2.5% decline of the S&P 500. This slide was largely driven by the anticipation of β€œhigher-for-longer” interest rates.

Additionally, with banks reporting earnings during the week, the SPDR S&P Bank ETF (NYSEARCA:KBE) dropped 3.1%. However, regional banks fared slightly better, with the SPDR S&P Regional Banking ETF (NYSEARCA:KRE) managing to edge up 0.1%.

Among the U.S. traded financial stocks with a market cap over $2 billion, Qifu Technology (NASDAQ:QFIN), a fintech company based in Shanghai, saw the biggest decline, sinking 15% over the course of the week. Another Shanghai-based fintech, Lufax Holding (NYSE:LU), also experienced a significant slide, with its stock falling 10%. Regional banks were not exempt from the impact, as Zions Bancorporation (NASDAQ:ZION) and Regions Financial (NYSE:RF) saw their stocks drop 13% and 9.9% respectively.

In contrast, there were a few financial stocks that managed to push higher amidst the volatility. Nu Holding (NYSE:NU), a digital banking platform based in Brazil, gained 5.3% as the Brazil real (BRL:USD) strengthened by 0.8% against the U.S. dollar. Nasdaq (NASDAQ:NDAQ) also climbed 2.5% after reporting strong Q3 earnings and revenue, as well as completing the antitrust review of its Adenza acquisition. F&G Annuities (NYSE:FG) and Allstate (NYSE:ALL) both saw increases of 2.5% and 2.4% respectively. FirstCash Holdings (NASDAQ:FCFS) rounded out the top five financial stocks of the week with a 2.1% gain.

In summary, the surge in long-end Treasury yields had a significant impact on financial stocks this week. While some stocks saw declines due to the anticipation of higher interest rates, others managed to weather the storm and even come out on top amidst the volatility. As the market continues to navigate these uncertain times, investors should closely monitor the impact of Treasury yields on financial stocks as it plays a crucial role in determining their performance.

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