Realist Real Estate Roundup 12/16-12/20

Fed begins the tapering process, bonds are sanguine

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 very slightly on FOMC meeting

Bonds took some bearish news relatively well last week as we had a strong housing starts number, the Fed decided to taper, and the final revision to third quarter GDP had a 4 handle. Unlike the previous few FOMC meetings, the bond market did not have a big move on the news.

Third quarter GDP surprises to the upside

On Friday, we got the third revision to third quarter GDP, which came in much higher than expectations at +4.1%. Much of the increase was driven by inventory build and spending on services. If consumer demand doesn’t materialize in the fourth quarter, then the Q4 number will be weaker due to the fact that the third quarter essentially “borrowed” growth from Q4.

Good housing data

We also got the first housing starts number in 3 months, which showed housing starts increased to a 1.1 million unit pace. This is the highest reading since Feb 2008. Also, homebuilder sentiment remains strong.

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.

 

The Realist Discussions