Key Highlights

  • The KBW Bank index fell on Monday and has now declined over the past five sessions.
  • The average 30-year Mortgage rate has climbed to its highest level since January 2025, according to Schwab.
  • The Dow fell 347.11 points to 51,481.51 and the S&P 500 dropped 59.72 points to 7,683.69.
  • Circle Internet slipped after announcing that its CFO will step down at the end of the year.

Higher yields are supposed to be good for banks, yet on Monday, September 28, bank stocks fell alongside a bond selloff that pushed the 10-year Yield to its highest level since 2007.

A puzzle on the screen

Textbook logic says banks love higher interest rates. They earn more on loans and securities, and the gap between what they pay depositors and what they charge borrowers can widen. So why did bank stocks slide on a day when Treasury yields jumped to multi-year highs?

The KBW Bank Index fell on Monday and has now declined over the past five sessions. Financials were among the S&P 500 sectors that fell hardest, and market reports said the day's declines were led by basic materials, consumer goods and financials.

Who fell

The biggest names were not spared. JPMorgan Chase (NYSE:JPM), a member of the Dow Jones Industrial Average, fell solidly, and Goldman Sachs (NYSE:GS) dropped by a similar amount, per stockmarketwatch.com. Neither had company-specific bad news. JPMorgan was even in the headlines for a positive reason, joining Nvidia (NASDAQ:NVDA)'s new open-source initiative to put safety guardrails on AI agents.

Citigroup (NYSE:C) slipped to $132.46, despite announcing an expanded stablecoin-payments Partnership with Coinbase (NASDAQ:COIN). Jefferies Financial Group (NYSE:JEF) reported after the close a jump in third-quarter Net Income to $260.6 million, or $1.08 a share, from $224 million a year earlier, yet market reports reported the shares slipped despite the beat.

Why higher yields can hurt

The answer lies in how fast and why yields are rising. A gentle, orderly climb driven by strong growth is one thing. A sharp surge driven by Inflation fears, a hawkish Fed and worries about bond Supply is another.

First, when yields rise quickly, the bonds banks already hold lose value on paper, which can weigh on capital. Second, higher rates raise the risk that borrowers struggle to repay. The average 30-year mortgage rate has climbed to its highest level since January 2025, according to Schwab (NYSE:SCHW).

The Fed and oil backdrop

The Federal Reserve raised rates in September for the first time in three years, and futures now price a strong majority chance of another hike at the October 28 meeting. Oil rose after President Trump rejected Iran's plan to reopen the Strait of Hormuz, and TD Securities' Prashant Newnaha said: "President Trump knocking back Iran's offer for diplomacy is driving a renewed rise in oil prices and is weighing on USTs."

The broader market offered no support. The Dow fell 347.11 points to 51,481.51 and the S&P 500 dropped 59.72 points to 7,683.69. On the NYSE, decliners outnumbered advancers 2,054 to 678. Schwab's Liz Ann Sonders described "bear-market level declines" beneath the surface, adding: "It's just happened through a process of churn and rotation."

Other financial movers

Nu Holdings (NYSE:NU), the Latin American digital bank, fell sharply after market reports reported it was in early talks to buy UK neobank Monzo. No deal has been confirmed. Circle Internet (NYSE:CRCL) slipped after announcing that its CFO will step down at the end of the year.

Bank investors turn to the week's data

Bank investors will focus on the week's data. Tuesday brings consumer confidence and JOLTS, Wednesday the August PCE inflation report, and Friday the September jobs report. Signs of a slowing economy combined with sticky inflation would be the toughest mix for lenders. The next round of bank Earnings will show whether rising yields are helping margins or hurting Credit quality.