What a Fed Rate Hike Means for Bank Stocks

The video tutorial explores the misconception that higher Federal Reserve rates automatically increase bank net margins. It highlights that while bank stocks often rise with rate hike prospects, there is no clear link between federal funds rate increases and net interest margins. The tutorial delves into yield curves, explaining that banks prefer lending long-term while deposits are short-term. Ideally, long-term rates should rise with short-term rates, widening the yield curve, but this hasn't occurred. The video discusses the flattening of yield curves, particularly the five-year treasury minus the three-month treasury bill rate, which has contracted significantly, indicating a bear flattening. This trend is unfavorable for net interest margins, urging investors to pay attention.

What is the significance of the spread between short-term and long-term rates for banks?

Why should investors be concerned about net interest margins according to the discussion?