The KBW Bank Index climbed to its highest level since 2007, boosted by optimism about a recovering U.S. economy, with vaccine progress and government stimulus in the works, and a steepening Treasury yield curve.

The index increased as much as 2.6 per cent, with all the members advancing Wednesday. Regional banks Citizens Financial Group, Zions Bancorp and PNC Financial Services Group were among the top gainers. Bank of America reached the highest since 2008, while Citigroup and Wells Fargo also rallied.

Higher rates allow banks to charge more to borrowers, boosting lending margins on products from credit cards to mortgages. That’s especially important to companies that don’t have substantial Wall Street operations.

Rising yields show the market “clearly expressing the view that economic activity is improving and investors are looking past the pandemic to a world with improved demand,” Morgan Stanley analyst Ken Zerbe wrote in a note. He highlighted Signature Bank and Silicon Valley lender SVB Financial.

Morgan Stanley raised price targets and earnings-per-share estimates for midcap banks to account for a much steeper 10-year Treasury futures curve and a likely first increase in the Fed funds rate in the third quarter of 2023. U.S. 10-year yields touched 1.43 per cent, the highest since February 2020.

On Monday, Wells Fargo analyst Mike Mayo boosted his target on BofA, citing expectations for higher earnings per share, the bank’s credit discipline and cost controls, and its sensitivity to interest rates and a post-Covid recovery.