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.
Bonds sell off on a data-light week
Bonds sold off after rallying the prior week on the GDP report. After closing out the prior week at 2.58%, interest rates moved higher in response to some stronger-than expected economic data like the ISM Services Index. The ten-year closed out the week at 2.62%. The productivity number was affected by bad weather, and could signal more hiring in the future. Unit labor costs rose, which is another bond-bearish report, although the Fed’s worry these days is that inflation is too low, not too high.
Janet Yellen addressed Congress last week and nothing market-moving came out of it. As a general rule, these things are more for the benefit of politicians—they will try and get the Federal Reserve Chair to agree with their worldview and use it as a way to add credibility to their policy prescriptions. Left-wing politicians focused on inequality and the minimum wage, while the right-wing politicians focused on runaway entitlement spending.
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.