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Recommendation: Watch for key releases during this eventful week

Part 3
Recommendation: Watch for key releases during this eventful week (Part 3 of 6)

Must-know: Will bonds react to Ukraine and Gaza tensions?

The ten-year bond continues its rally

The roundup is a weekly series in which we discuss the week’s trading in government bonds and To-Be-Announced (or TBA) 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 real estate investment trusts (or 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 exchange-traded funds (or ETFs) like the iShares 20+ Year Treasury Bond ETF (TLT) or in homebuilders.

10 year bond yield - LTEnlarge Graph

The calm before the storm

Last week had very little market-moving data, so it’s unsurprising that bond yields went nowhere. There could be a bit of a bid in the bond market due to the Ukrainian situation and the Israeli situation, but this is probably de minimus.

The only market-moving data was the bullish initial jobless claims report, which pushed bonds lower for a day.

After starting the week at 2.467%, bonds rallied seven basis points. They finished at 2.4655%. The only activity was the 3 basis point selloff on the initial jobless claims report and bonds rallied right back on Friday. Next week is the big week for bonds.

Outlook

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

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

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