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 are flat
The ten-year bond yield rose 1 basis point, from 2.59% to 2.60%, which is unsurprising given that there was little important 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 a couple of weeks ago. Technical traders may have been playing that range, and when it broke, it may have triggered some stops. The decision by the ECB (European Central Bank) to start paying a negative interest rate on deposits may have been a factor as well.
Generally, May’s economic data has been reasonably strong. Both the NFIB Small Business Optimism report and the JOLT Job Openings Report hit post-crisis highs. Retail sales came in disappointing, but the revisions to April’s numbers were huge. We have some important data coming out this week, with the industrial production data and housing starts. The Fed will also meet and weigh in on the economy.
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.