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Key points
- ASX financials are doing slightly better than the benchmark index in 2022
- The Bank of Queensland share price is performing well against other banking majors
- Most brokers covering Bank of Queensland have it as a buy right now
ASX financials are off to a shaky start in 2022 as the market undergoes another systematic correction from near all-time highs. Still, the financial sector is holding up slightly better than the ASX 200 benchmark.
While the S&P/ASX 200 index (ASX: XJO) is down 3.54% since January 1, the S&P/ASX 200 Financials index (ASX: XFJ) has slipped 3.22%.
The financials sector is faring better than other pockets of the market. For instance, the S&P/ASX 200 All Technology index (ASX: XTX) has plunged 11.5% in 2022. It is facing several systematic headwinds going forward.
Within the ASX financials group is the Bank of Queensland Limited (ASX: BOQ). Its share price has collapsed by 22% from its most recent high of $9.84 in October. At the time of writing, the Bank of Queensland share price is $8.03.
Central to the market's troubles in the new year is the pressure of rising bond yields and the current level of inflation within the real economy. Both factors heavily influence interest rates, which tend to follow trends within the bond markets – particularly US Treasury bonds.
With this in mind, several leading brokers reckon that Bank of Queensland is poised to unlock shareholder value in 2022, and rate it as a buy.
Let's take a look at what rising bond yields mean for the Bank of Queensland and see what the experts think.
What's in store for the Bank of Queensland share price in 2022?
Yields on US Treasury bonds have been rising since December and are now at their highest levels since March 2021.
In response, investors are flocking to defensive asset classes like financials. They're doing this in order to protect capital and ensure a rate of return that beats inflation.
Inflows into financial-themed ETFs have spiked this month, as investors fly to quality and look for pricing power in response to a shift in bond yields and, potentially, interest rates.
For instance, the iShares US Financials ETF (NYSEARCA: IYF) saw a 5% year on year gain in inflows in the last week of December.
The Financial Select Sector SPDR Fund (NYSEARCA: XLF) saw inflows of $2.34 billion in the first week of January – the highest of any ETF product.
Research from JP Morgan shows financial stocks had the highest correlation to changing bond yields over the past 5 years. This could bode well for the sector should bond yields continue rising, the broker says.
Not only that, but JP Morgan reckons the shift in bond yields will benefit Bank of Queensland's lending revenue. It sees $507 million in cash earnings for FY22 for the bank, in this regard.
Goldman Sachs notes that the Bank of Queensland's deposit book is more rate-sensitive than the other banking majors. Strengths here are sure to offset any weakness in net interest margins, Goldman reckons.
Looking at broker sentiment for Australian banking majors, Bank of Queensland appears to have the most bullish weight behind it.
Both Goldman and JP Morgan rate it as a buy and value the bank at $9.67 and $9.80 respectively. The pair are joined by 9 other firms in a list of analysts provided by Bloomberg Intelligence. They set a consensus price target of $9.75.
Putting it all together, most brokers seem to think that the shift in bond yields will be a net positive for Bank of Queensland. Or at least, the bank can weather any storm created by this shift.
In the past 12 months, the Bank of Queensland share price has climbed by less than 1%. It is down by more than 3% in this past week of trading.
