Why 10-year bonds sold off on a thin holiday-shortened week
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.
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Bonds sell off on no obvious catalyst
Last week was a holiday-shortened week, as Thursday was an early close and Friday the markets were closed in observance of Good Friday. The fact that many desks were understaffed on Thursday meant that some of the moves could have been driven by thin markets. Generally, senior traders often take a four-day weekend, leaving junior traders with instructions to stay out of the way (in other words, don’t trade). This means that a lot of the natural dampening movement in reaction to data is absent.
Thursday didn’t have any super-important data (initial jobless claims came in a touch better than expected, and Philly Fed was stronger than expected, but the most rational explanation for the move is just simple lack of liquidity and fear of being long going into the long weekend). Note that European markets are closed on Good Friday and the day after Easter, so European investors may have gotten flat ahead of the long weekend.
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 the past and upcoming economic data.