Should REIT investors try to trade on the Ukraine tensions?

Should REIT investors try to trade on the Ukraine tensions? (Part 1 of 7)

Why bonds got clocked on jobs releases and Ukraine tensions

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 fall due to stronger economic data and a lessening of tensions in Ukraine

We had some good of economic data last week, with personal incomes coming in better than expected, followed by a mixed ISM report and then a stronger-than-expected jobs report. The ADP jobs report ended up being too conservative, which left bonds vulnerable after the stronger-than-expected numbers out of the BLS. Hourly earnings increased, but average weekly hours declined.

After starting the week at 2.6%, bonds sold off as equities rallied and finished the week yielding 2.79%.

Construction spending was better than expected

January’s construction spending rose 0.1%, which is pretty decent, given that the weather wasn’t co-operating at all. Most other economic indicators blamed weather for any weakness. If construction spending comes back, that will be a tremendous boost for the economy, as construction employs a lot of people. Right now, we’re seeing bidding wars for skilled construction workers.

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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