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Realist Real Estate Roundup, October 26–November 1

Realist Real Estate Roundup, October 26–November 1 (Part 1 of 7)

Why bonds sold off on the Federal Open Market Committee statement

Why follow the weekly Realist Real Estate Roundup?

The roundup is a weekly series in which we discuss the week’s trading in government bonds and TBA (To-Be-Announced) mortgage-backed securities. We’ll see where mortgage rates have been and we’ll go over the weekly economic data and earnings announcements. Then we’ll look forward to what’s coming up the following week. The information in this series will be relevant to mortgage REITs like American Capital Agency (AGNC), Annaly (NLY), Hatteras (HTS), Capstead (CMO), and MFA Financial (MFA) as well as people who invest in homebuilders.

10 year bond yield - LTEnlarge Graph

Bonds sell off on a FOMC statement that was not as dovish as hoped

The Fed chose to keep interest rates and asset purchases the same as before, but the body language of the statement was that it was still looking to reduce asset purchases. The Fed’s assessment of the economy was that it’s stronger than last year, and it expects the economy to continue to strengthen. (The Fed has been consistently over-optimistic about the economy.) Many participants were expecting more dovish language—that the Fed would worry about the economy and the housing market. The bond market sold off by about 12 basis points on the ten-year.

Realistically, with yet another government shutdown as a possibility early next year, a December taper is probably not going to happen. However, a March 2014 taper is looking more and more likely.

In the next parts of this series, we’ll look at trading in the TBA market (which is the basis for mortgage rates), see where mortgage rates have been for the week, and then discuss past and upcoming economic data.

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