US treasury bond yields caught out many investors in the first quarter, tightening sharply below 4% in February and once more wrong-footing many who had been expecting that they would widen.
Financial institutions have benefited so far. The four US investment banks that announced first-quarter earnings last month had bumper trading quarters, whether from proprietary or customer trading. All easily beat equity analysts' consensus earnings per share numbers as a result, Goldman Sachs managed to do so by 50%.
As for commercial banks the Federal Reserve's weekly h-8 report shows that unrealized securities gains at the "large domestically chartered banks" spiked from $5 billion at the end of January to $12.9 billion in mid-March.
Their holdings of mortgage-backed securities also increased, rising 27%, or $81.8 billion, in one week in mid-February to $379.3 billion, having increased little since the summer crisis.
Bank of America accounts for perhaps half the jump, as it settled billions of forward purchase contracts of both MBS and mortgage whole loans in February. The rest of the $81 billion is probably just betting on the yield curve.
If feels like last summer again, with bond yields at or near multi-decade lows.