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The flight-to-quality trade boosts bonds as investors sell stocks

The flight-to-quality trade boosts bonds as investors sell stocks (Part 1 of 7)

Why bonds are benefiting from the flight-to-safety trade

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 on the flight-to-quality trade

Last week was data-light, and liquidity was sparse after a three-day weekend. Bonds are benefiting from the flight-to-quality trade as investors sell stocks. A sell-off in emerging markets may have been the catalyst, but towards the end of the week, equities in general were slammed.

After starting the week at 2.82%, bonds rallied as equities sold off and finished the week yielding 2.72%.

Mixed datapoints, but overall nothing newsworthy

We had some mixed regional Fed reports with a weaker-than-expected Empire State Manufacturing Survey and a stronger-than-expected Kansas City Fed report. Existing home sales came in weaker, as did the index of leading economic indicators (or LEI), but the LEI was revised upward for November.

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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