Why you should stay tuned to the short, data-heavy week ahead

Part 3
Why you should stay tuned to the short, data-heavy week ahead (Part 3 of 6)

Why bonds continue to ignore evidence of economic strength

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 continue to rally

The bond market continued its recent pattern of ignoring bond-bearish data and rallying on bond-bullish data. For the most part, the economic data last week was stronger than expected, which would ordinarily be bond-bearish. The only negative reports last week were the weak durable goods and personal spending data along with the terrible revision to first quarter GDP. The GDP number obviously had a huge asterisk next to it. No one is forecasting second quarter to be anything but strong. Between the healthcare spend revision and the bad weather, it’s really hard to read to much into the report.

Overall, the economic data lately has been pointing more towards a strengthening economy, not a weakening one. But housing remains stubbornly depressed, as the first-time homebuyer remains over-indebted with student loan debt and faces a tough job market. The lower rates, however, are helping the real estate market somewhat. Mortgage origination activity is picking up.

In the the next parts of this series, we’ll look at trading in the TBA market, which is the basis for mortgage rates. We’ll see where mortgage rates have been for the week.

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