Must-know: Why bonds sold off on stronger-than-expected releases
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 fall on weaker-than-expected economic data
The ten-year bond yield rose 11 basis points, from 2.48% to 2.59%, on stronger-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 sending mixed signals on the economy. The data that’s been weak has been very weak, and the data that’s been strong has been very strong. That said, March’s economic numbers were very good, so April had a hard act to follow.
The most important economic numbers last week were the ISM data, which was really quite strong (although the bond market was buffeted, as the ISM Manufacturing report was revised twice). The jobs report came in more or less in line with expectations, and bonds didn’t react to the number.
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.