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Why this week is all about earnings for REITs like Annaly

Part 3
Why this week is all about earnings for REITs like Annaly (Part 3 of 6)

Why were bonds relatively static despite interesting releases?

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.

10 year bond yield - LTEnlarge Graph

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.

Lots of data, little action

Last week had a lot of stuff that could move the bond market, but bonds were relatively static. They sold off on the higher-than-expected employment cost index but rallied back after the jobs report showed no wage inflation. Until we have wage inflation in the U.S., we probably will not have the set of circumstance to really launch inflation, so bond investors are focusing on that.

After starting the week at 2.49%, bonds dipped to 2.56% and rallied right back. Next week has a dearth of data, so investors shouldn’t expect much in the way of movement.

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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