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Since the start of the coronavirus outbreak, the yield curve has become considerably steeper. The difference...

Since the start of the coronavirus outbreak, the yield curve has become considerably steeper. The difference between the yield on the 10-year U.S. Treasury and the federal funds rate has increased be about 100 basis points. Explain how such a change would likely affect the net interest margin of a bank such as local banks?

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Since the start of coronavirus outbreak,the yield curve has become considerably steeper as there is growing economic uncertainity about an impending recession . There has been a global demand slowdown amid lack of growth due to lockdown of business units globally. FED cut the interest rate by 100 basis point to infuse liquidity and control the lack of demand in the overall markets.

The increase of bank rates by 100 basis points means bank will not be able to lend more as they will be left with lesser reserves .This is because Fed doesnot want the defaults to go up.Under such uncertain times defaults create havoc as people are left with less disposable income.

Net interest margin will be effected by 25 basis points as it would not pass on totally onto the books of banks .

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