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REITs are getting bullish as bonds rally on tensions: Should you?

REITs are getting bullish as bonds rally on tensions: Should you? (Part 1 of 7)

Why bonds are rallying on international tensions and mixed releases

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 rally despite some stronger economic data

We had a mixed bag of economic data last week, with GDP coming in weaker than expected but durable goods orders stronger than expected. Bonds would have ordinarily sold off on the stronger data, but escalating tensions in Ukraine have caused a flight-to-safety trade.

After starting the week at 2.74%, bonds sold off as equities rallied and finished the week yielding 2.65%.

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

Last week, we had a number of reports from the regional Fed banks—specifically the Chicago Fed National Activity Index, the Dallas Fed Manufacturing Index, and the Richmond Fed Manufacturing Index. Pretty much every reading came in weaker than expected, although weather seems to have been a big factor. New home sales came in much better than expected, while pending home sales were weaker.

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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