Financial ETF Is Attempting a Historic Breakout as Interest Rates Rise


The SPDR Financial ETF quietly did something historic last week: It closed at the highest price ever.

This is a big deal because XLF has been trapped at resistance running back to 2007 (before the subprime crisis). It was trying to break the old highs around $31 exactly a year ago, then lost 44 percent of its value when the pandemic hit.

XLF jumped early this year to test those levels, retreated to its 50-day moving average and quickly rebounded. Traders will now be watching to see if prices can escape from the tight consolidation pattern between about $31 and $31.60.

Fundamentals could be more positive than a year ago because the yield curve has steepened dramatically. (The difference between 2-year and 10-year Treasuries has increased from about 20 basis points in February 2020 to about 110 basis points.)

The higher long-term rates result from the stronger economic backdrop (also displayed by oil prices). That healthier economy offers two other potential benefits to banks: more lending and fewer loan defaults.

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