X
<

Analyzing Upcoming Real Estate–Related Data This Week

PART:
1 2 3 4 5 6
Part 4
Analyzing Upcoming Real Estate–Related Data This Week PART 4 OF 6

Mortgage Rates Are Unchanged as Bonds Sell Off

Critical input for the housing market

Mortgage rates are the lifeblood of the housing market. The Fed’s plan to help the housing market started when it pushed rates lower to allow people to refinance. The Fed hoped that lowering mortgage rates would also support home prices.

Mortgage Rates Are Unchanged as Bonds Sell Off

Mortgage Rates Are Unchanged as Bonds Sell Off

Receive e-mail alerts for new research on AGNC:

Interested in AGNC?
Don’t miss the next report.


Success!
You are now receiving e-mail alerts for new research. A temporary password for your new Market Realist account has been sent to your e-mail address.

Success!
has been added to your Ticker Alerts.

Success!
has been added to your Ticker Alerts. Subscriptions can be managed in your user profile.

Quantitative easing was a key part of that effort. The Fed is reluctant to sell its MBS (mortgage-backed securities) holdings. It doesn’t want to raise mortgage rates too much.

Mortgage rates ignore volatility in the bond market

Lately, mortgage rates and bond yields have shown a weak correlation. Treasury yields have fallen over the past month, while mortgage rates have been steady. Last week, the ten-year bond yield rose 7 basis points to 158 basis points. Mortgage rates were unchanged at 356 basis points. Investors interested in making directional bets on interest rates can look at the iShares 20+ Year Treasury Bond ETF (TLT).

Impact on mortgage REITs

At this point, mortgage bankers such as Nationstar Mortgage Holdings (NSM) and Wells Fargo (WFC) are hoping that 2016 is the year Millennials start buying homes. Mortgage bankers are dreading the inevitable decline in refinancing activity as rates rise, but they’re hoping the purchase business continues to improve.

The increase in prepayment speeds should be bad news for mortgage REITs such as Annaly Capital Management (NLY) and American Capital Agency (AGNC). They’re highly leveraged agency REITs with a lot of prepayment exposure. Non-agency REITs such as Redwood Trust (RWT) tend to swap interest rate risk for credit risk.

Investors interested in trading in the mortgage REIT sector through an ETF can look at the iShares Mortgage Real Estate Capped ETF (REM).

In the next part of this series, we’ll discuss the movement of Fannie Mae TBA (to-be-announced) securities last week.

X

Please select a profession that best describes you: