Key releases that could affect your REIT and homebuilder portfolio

Part 3
Key releases that could affect your REIT and homebuilder portfolio (Part 3 of 6)

Why bonds fell last week while house prices continue to rise

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.

10 year bond yield - LTEnlarge Graph

Bonds fall on weaker-than-expected economic data

The ten-year bond yield fell 5 basis points, from 2.53% to 2.48%, 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 a couple of weeks ago. 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 second revision to first quarter GDP, which came in much weaker than expected. The second revision to first quarter GDP came in at -1%, which suggests that bad weather had an outsized effect on the economy. We also had some important house price data, showing that house prices continue to rise.

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.

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