Must-know update for investors: Bonds rally on weak economic data
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 rally on weak economic data
The ten-year bond yield fell 10 basis points, from 2.62% to 2.52% 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. Technical traders may have been playing that range, and when it broke, it may have triggered some stops.
It started with the weak retail sales numbers, which in all fairness, were not terrible given that March was revised upward. March’s numbers were very good, so April had a hard act to follow.
Later on last week, we had some very disappointing industrial data, with industrial production, manufacturing production, and capacity utilization failing to follow through on March’s strong numbers. March was strong due to a weather-related rebound, but any worries that it was a temporary spike were borne out when production and capacity utilization contracted in April.
Finally, we had better than expected housing starts and building permits, which limited some of the bond market’s gains for the week.
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.