Capital One, Commerce Bancorp: Benefit From a Positive Sloping Yield Curve

Includes: CBH, COF
by: Echo To All

Echo To All submits: When I was listening to Kudlow and Company on Friday, Arthur Laffer stated something interesting. He stated the yield curve is becoming positive sloping, and to get into stocks that would benefit from the economic situation.

A look at short-term rates vs long-term rates better explains what he is talking about.

The chart below shows the 3month vs 10yr rates and a value below 1.00 indicates a positive (rightward) sloping yield curve. Since mid March the slope appears to started its correction, and the DMI suggests a pretty strong negative trend. If this trend continues, and the slope turns rightward, regional banks should benefit. Their margins should increase. During the yield inversion they were dependent on fees, but now they can benefit from the rightward sloping curve.


The names I like are Capital One Financial (NYSE:COF) and Commerce Bancorp (CBH).

Capital One Financial - I mentioned COF and this macro economic situation before, but now the COF chart looks to be getting more bullish, breaking from its long negative trend and putting the subprime mess behind it.


Commerce Bancorp - Commerce is a pure banking play, and should benefit more from these economic conditions. Its PE is a bit high, but CBH has always traded with a high PE. Also, on a more speculative note, the June 35 strike options seem to have had a high activity, suggesting a move above 35.


There are obviously more plays, but these are the ones I know the best, and with my limited finances I can not play them all. If I had to choose between the two, I would play COF. The reason is because I know the management and company better, and their chart is getting bullish.