What to buy as this yield curve inverted on Tuesday?

on Mar 22, 2022
  • The Bank of America favours "financials" despite inversion of the yield curve.
  • SoFi's Liz Young agrees with the bank's note on CNBC's "Halftime Report".
  • XLF has shot up more than 10% in two weeks amidst talks of recession.

Inversion of the yield curve shouldn’t scare investors out of “financials”, says analysts at the Bank of America. As of Tuesday, the yield on 3-year bonds has surpassed the one on 10-year bonds.

Liz Young comments on the bank’s note

Historically, the investment bank added, financials outperform half of the time during curve inversions. Commenting on BofA’s note, SoFi’s Liz Young said on CNBC’s “Halftime Report”:

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Usually, financials are correlated with the long-end of the curve. Recently, they’ve decoupled because the entire curve moved up. Generally, following the inversion is a pretty quick steepening. So, financials would benefit from that.

The Bank of America sees financials as a suitable hedge against stagflation as well.

Why else does Young like financials?

Among other reasons why Young sees bank stocks as great picks despite inversion of the yield curve is the strength of their balance sheet. She added:

Let’s move through the year. If consumers start to run out of their excess savings, they’ll start to borrow because they still have demand. They’ll borrow from the banks in an environment where rates are higher. So, I still like financials here.

Financials have already been performing well over the past couple of weeks, with the Financial Select Sector SPDR Fund (XLF) up more than 10% amidst talks of recession.

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