Wall Street contemplates a January taper while big banks compete

Wall Street contemplates a January taper while big banks compete (Part 1 of 5)

Bond market outlook: Why we’re seeing a strong bonds rally

Why follow this weekly 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 rally as the employment report comes in disappointing

Bonds rallied strongly on the employment report, which showed the economy only created 74,000 jobs in December. The unemployment rate dipped to 6.7%. The Street was at around 200,000 jobs with an unemployment rate at 7%. The labor force participation rate dipped again, showing that November’s increase was probably just a statistical blip. Bonds continued that rally the following week.

After starting the week at 2.86%, bonds stayed within a few basis points of that level and then rallied to close the week yielding 2.82%.

Homebuilder-related indices are still strong

We had a few reports of interest to the builders last week. Housing starts came in a little better than expected, just shy of 1 million, although this was a big drop from the 1.1 million print in November. Building permits were disappointing but still approaching 1 million as well. Homebuilder sentiment through the NAHB Builder Sentiment Report remained buoyant.

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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