Why AGNC is buying REITs as the flight to safety trade unwinds

Why AGNC is buying REITs as the flight to safety trade unwinds (Part 1 of 7)

Why bonds are selling off as emerging market fears recede

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 had a lot of data—some of which 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 2.58%, bonds sold off as equities rallied and finished the week yielding 2.68%.

Some weaker-than-expected data points, especially ISM

We had some particularly weak economic reports last week, starting with the ISM report, which came in much weaker than expected. Construction spending came in better than expected, however. The jobs report on Friday was weak as far as payrolls go, but unemployment declined and the labor force participation rate increased. The Bureau of Labor Statistics made some adjustments to the population numbers out of the Census, so that could account for the strange combination of weak payrolls, lower unemployment, and higher labor force participation rate.

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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