(New York)

Investors who own bank stocks or ETFs have probably been shocked over the last couple of days. The financial sector lost 4% yesterday alone. Many may be wondering why. While no one is quite sure, there do seem to be some concrete reasons, and not just because of the Italian drama. The bigger culprit is likely because of tumbling US Treasury yields, which have fallen from well above 3%, to well below 2.9%. Banks stocks have historically performed poorly in periods of flattening yield curves. Lower rates and yields hurt banks’ net interest margin.

FINSUM: US banks have very little exposure to Italy, so there is no reason for any meltdown fears, yet the sector has reacted almost overly strongly. It seems the only explanation has to do with US yields falling.