Illustration: Aïda Amer/Axios

Ally Financial was the latest bank to declare a major profit windfall in its second quarter earnings report, as the U.S. banking industry's largest auto lender reported a profit increase of 67%.

Why it matters: Americans are borrowing record sums to buy new vehicles — and used ones — and they continue to pay relatively high interest rates. Banks are seeing big profits as a result.

The intrigue: U.S. Treasury yields have fallen to their lowest level in more than 2 years, pushing down interest rates on bonds and savings accounts. Yet, Fed data shows auto loan rates in Q2 remained well above their average over the past decade, and even higher than in the fourth quarter of 2018 when Treasury yields reached their highest since 2011.

  • The interest rates banks charge for loans are typically tied to the yield on Treasuries, as banks adjust their rates in conjunction with movement in the bond market to remain competitive for customers.
  • However, as rates in the U.S. and globally have fallen in 2019 that traditional correlation has not yet materialized.

What's happening: U.S. consumers are scaling back on new vehicle purchases and even buyers with top tier credit are opting for used instead of new, data shows, but the banks continue to squeeze big profits.

  • Ally's stock rose 6.5% to an all-time high of $33.49 a share Thursday as retail auto loans clocked $72.3 billion, up from $69.9 billion in the year-earlier period. Its average yield on retail auto loans increased to 6.58% from 6.08%.

Where it stands: Experian, which tracks millions of auto loans each month, said the average amount Americans are borrowing for a new vehicle rose to a record high of more than $32,000 last month.

  • Americans also are paying record high average monthly payments for both new and used vehicles.

"We have not seen a slowdown in loan demand. In fact, volume for new and used loans is up from previous years," Melinda Zabritski, senior director of automotive financial solutions for Experian, told CNBC in June.

The bottom line: Investors have worried that lower rates will hurt banks' profit margins and income. So far, that hasn't been the case.

Go deeper: Debt-ridden millennials are taking out loans to pay for weddings

Go deeper

Judge orders Eric Trump to testify in New York probe before election

Photo: Ira L. Black/Corbis via Getty Images

A judge on Wednesday ordered Eric Trump to comply with a subpoena to testify in a New York probe into his family business before the presidential election.

The state of play: New York Attorney General Letitia James (D) last month said her office had filed a lawsuit to compel the Trump Organization to comply with subpoenas related to an investigation into whether President Trump and his company improperly inflated the value of its assets on financial statements.

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Silicon Valley venture capitalists are no longer content with investing in startups and then eventually handing them off. Instead, many are now forming SPACs, or blank-check acquisition companies, to ride tech unicorns into the public markets themselves.

Axios Re:Cap digs into this trend with the co-founders of a new tech SPAC called Reinvent Technology Partners: Reid Hoffman, a co-founder of LinkedIn and partner at Greylock, and Mark Pincus, the founder and former CEO of Zynga.

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Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 2:30 p.m. ET: 31,717,955 — Total deaths: 973,014 Total recoveries: 21,795,005Map.
  2. U.S.: Total confirmed cases as of 2:30 p.m. ET: 6,913,046 — Total deaths: 201,319 — Total recoveries: 2,646,959 — Total tests: 96,612,436Map.
  3. Health: CDC director says over 90% of Americans have not yet been exposed to coronavirus — Supply shortages continue to plague testing.
  4. Politics: Fauci clashes with Rand Paul at COVID hearing: "You're not listening" — FDA chief vows agency will not accept political pressure on coronavirus vaccine.
  5. Vaccines: Johnson & Johnson begins large phase 3 trial — The FDA plans to toughen standards.
  6. Sports: Less travel is causing the NBA to see better basketball.

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