The ten-year bond is the building block for many important interest rates
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 are flat on no news
The ten-year bond yield rose 1 basis point, from 2.52% to 2.53% on weaker-than expected economic data last week. The ten-year bond yield had been trading in a narrow range of 2.6% to 2.8% for several months, and it broke out of its range on Wednesday last week. Technical traders may have been playing that range, and when it broke, it may have triggered some stops.
We’ve been getting April economic data, which has been coming in weaker than expected. That said, March’s economic numbers were very good, so April had a hard act to follow.
The most important economic number last week was the Chicago Fed National Activity Index, which looks at economic activity nationwide, not just in the Chicago Fed area. The CFNAI is a volatile index, so it makes sense to look at the three-month moving average. The headline number was negative, but the three-month moving average remained positive.
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.