2026-01-07 16:27:16

JPMorgan's earnings report is about to be released, and the market generally expects the financial sector to support about one-fifth of the S&P 500's profits. Behind this expectation, the bond market is telling an interesting story.

Recently, the yield curve has started to steepen. This seemingly technical change is actually good news for the banking system. When the curve is steep, the spread between long-term and short-term interest rates widens, and banks' net interest margins expand accordingly — this directly means they have a broader profit margin from lending. Coupled with active M&A transactions at the moment, investment banks' underwriting and advisory businesses can also benefit.

The problem lies on the other end. Credit quality has always been a hidden concern. If the employment market continues to cool down, the chain reaction of rising unemployment rates will be reflected in higher bad debt ratios. This could offset the profit growth brought by the widening net interest margins. Simply put, the performance of financial stocks depends on the degree of a soft landing in the economy — enjoying the benefits of the interest rate structure while avoiding the bullets of worsening employment.

View Original

This page may contain third-party content, which is provided for information purposes only (not representations/warranties) and should not be considered as an endorsement of its views by Gate, nor as financial or professional advice. See Disclaimer for details.

13 Likes

Reward
13
7
Repost
Share

Comment

0/400

FlatTax

· 01-10 11:03

A steep curve sounds good, but bad debt is really the key... Once employment collapses, no matter how much banks earn from interest rate spreads, it's all pointless.

View OriginalReply0

DiamondHands

· 01-10 06:55

The yield curve steepening makes banks happy, but rising unemployment and bad debts follow. Can this wave achieve a soft landing? It's a bit uncertain.

View OriginalReply0

Blockwatcher9000

· 01-09 18:18

Making the curve steeper sounds good, but I just want to ask, can bad debts really be controlled? It feels like banks are betting on a soft landing, taking too big a gamble.

View OriginalReply0

AirdropHarvester

· 01-07 16:57

The curve is steepening, and net interest margin is widening. Sounds good, but I'm more concerned about whether the bad debt rate will explode. --- Soft landing? I think there's an 80% chance of a hard landing. The days of banks profiting from the spread are almost over. --- JPMorgan is bragging again. One-fifth of profits supporting the market. If it's so strong, why is it still falling? --- Employment cooling is the key. That's the real minefield. No matter how wide the NIS is, it can't save bad debts. --- Mergers and acquisitions are booming? Uh, isn't that a sign that the economy is starting to finance wildly? A reverse indicator, everyone. --- How many people were fooled by the yield curve? It was said to be steepening last time too. And look what happened. --- Net interest margin sounds good, but rising unemployment is the bank stock's nemesis. Who dares to hold a heavy position? --- It's the same old soft landing topic. I'm tired of hearing it. Let's wait for the hard data to come out.

View OriginalReply0

MEVHunterBearish

· 01-07 16:52

Net interest margin expansion sounds good, but the bad debt ratio is really a sword hanging over our heads. Soft landing is easy to talk about but hard to achieve.

View OriginalReply0

ImpermanentTherapist

· 01-07 16:46

A steeper curve is great for banks, but you really have to be careful with the unemployment bullet... Soft landing is easier said than done.

View OriginalReply0

rugpull_ptsd

· 01-07 16:43

Speaking of which, when the yield curve steepens, banks benefit. I've heard this logic too many times... The key still lies in employment. Once the unemployment rate rises, bad debts can explode in minutes. Soft landing? I think it's like dancing on the edge of a knife. Net interest margin has indeed widened, but I'm even more afraid of seeing bad debt data. That's how history always plays out. One-fifth of S&P profits rely on finance? That's too outrageous. Can they really stabilize this time? I’ve looked at JPMorgan's earnings report, but I’m more concerned about what the Federal Reserve will do next.

View OriginalReply0