Bonds sell off despite weaker releases as emerging markets improve

Bonds sell off despite weaker releases as emerging markets improve (Part 1 of 6)

Bonds sell off despite weaker releases as emerging markets improve

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 fixed income ETFs like TLT or in homebuilders.

10 year bond yield - LTEnlarge Graph

Bonds sell off as emerging markets fears recede

Last week’s data wasn’t very plentiful—and some of it came in weaker than expected. Bonds would have ordinarily rallied on weak data, but the lack of bad news out of emerging markets may have pulled some of the flight to safety money out of bonds.

After starting the week at 2.68%, bonds sold off as equities rallied and finished the week yielding 2.74%.

Some weaker-than-expected data, especially in the manufacturing sector

We had some particularly weak economic reports last week, starting with retail sales, which dropped in the month of January. This has been a tough winter, especially in the Northeast, so weather played a part. Industrial production came in much weaker than expected and capacity utilization fell. Again, weather was blamed. Finally, we had Janet Yellen in front of Congress, where she pretty much said things would continue as before.

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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