What Rising Treasury Yields Could Mean for Bank Earnings

Posted on October 12, 2026

Rising Treasury yields can create both opportunities and challenges for banks. Higher yields may improve net interest margins and reinvestment yields, while also increasing borrowing costs, reducing the value of existing fixed-income holdings and potentially weighing on investment banking activity.

As we approach another earnings season, there is a lot to be excited about, but also some possible weakness – specifically in the finance sector. For the past couple years as interest rates have come down and the labor market has remained stable, the finance sector has done incredibly well.

However, in the past few months, things have changed. Treasury yields have risen – the 10-year treasury (the benchmark for most borrowing costs, including mortgages) has hit a new high of 5.35%, not seen since before the Great Financial Crisis of 2008. That’s not to say we expect a recession anytime soon, in fact as a firm we are quite optimistic on the economy. But when it comes to the finance sector, rising yields can be both good and bad news at the same time. On the positive, rising yields can improve bank’s net interest margin and reinvestment yields. This of course has knock-on effects for the consumer, mainly increased borrowing costs on things like credit cards and mortgages. On the negative side of things, higher yields will also reduce the value of banks’ existing fixed income holdings, as prices and yields are inversely related. Higher yields can also weigh on investment banking revenue as fewer companies are looking for financing due to higher costs.

Bank of America warned last month that investment banking and trading revenue may come in lighter than expected. That is not to say that will be true across the industry, but it does signal a possible return to seasonality that was not entirely present last year. Q3 is usually the slowest quarter in the banking world, but that wasn’t the case last year. This year, if that seasonality does return across the industry, we could see year-over-year earnings that look disproportionally low. That’s part of the reason bank stocks have been under pressure since Bank of America issued their warning. This bank earning season will also give us insight into the health of the consumer.

So far, even after supply shocks in the energy and retail goods markets, the consumer has remained resilient. The banks’ earnings will be the first since the Fed hiked rates in September, so it will be very interesting to see if and how that hike, in combination with higher yields across the board have impacted consumer spending habits. None of this is cause for concern. We remain optimistic about banks and the broader financial sector; these are simply a few of the factors we are monitoring closely. Interest rates, earnings and consumer trends can shift quickly, making disciplined investment management increasingly important. At Florida Trust Wealth Management, our investment team closely monitors the factors shaping markets and portfolios. Discover how our investment approach can support your long-term financial goals.

Gabriel Makowsky
Investment Associate
Florida Trust Wealth Management