<

Key releases: The earnings season kickoff and the FOMC minutes

Part 3
Key releases: The earnings season kickoff and the FOMC minutes (Part 3 of 6)

Why bonds have finally stopped ignoring strong reports

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 sell off on stronger economic data

The bond market broke from its recent pattern of ignoring bond-bearish data and rallying on bond-bullish data. For the most part, the economic data last week was weaker than expected. This would ordinarily be bond-bearish. The employment situation report was bond-bullish on its face, with a much stronger payroll number. But once people started to look at the report’s internals, bonds began to rally back, as the growth was in part-time jobs. After starting the week at 2.53%, bonds picked up 11 basis points. They finished at 2.64%.

Overall, the economic data lately has been pointing more towards a strengthening economy—not a weakening one. But housing remains stubbornly depressed. 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.

The Realist Discussions