Regional Banks Face Yield Headache: Credit Weekly (Correct)

US Treasury yields have trended up since late last year, and commercial real estate distress risk is straining regional banks’ balance sheets again.

Stocks are already reacting to the higher borrowing costs. Smaller bank shares have fallen about 8.2% since late November after the 10-year Treasury yield began trending up. The risk of default by borrowers who bought office buildings before the pandemic sent values plummeting also increases when the cost of credit rises.

“Rising long-term yields certainly leave the banking system more fragile in the short run, if more profitable in a base case economic scenario,” said Steven Kelly ...