Ginnie Mae TBAs Underperformed Fannie Mae TBAs Last Week
Ginnie Mae TBAs rallied and gained 12 ticks to 104 10/32, underperforming Fannie Mae TBAs.
Fannie Mae TBAs started last week at 103 13/32 and picked up 22 ticks to go out at 104 4/32. The ten-year bond yield fell by 17 basis points.
Mortgage rates are the lifeblood of the housing market. The Fed’s plan to help housing began when it pushed rates lower to allow people to refinance.
Ten-year bond yields influence everything from mortgage rates to corporate debt. They’re now the benchmark for long-term US interest rates.
Last week had some important real estate data with housing starts topping 1.2 million (and the prior month revised upward to over 1.2 million) although building permits fell.
The markets are usually dull in late August. However, we’ve been seeing an accelerating global stock market selloff, which has been dominating markets and interest rates.
Increasing prepayment speeds will have more of an effect on mortgage REITs that are concentrated in 30-year agency fixed-rate mortgage-backed securities.
Quantitative easing (or QE) has increased the size of the Fed’s balance sheet almost eightfold since the turn of the century.
Credit conditions were considered “accommodative” for large non-financial firms. Corporate bond issuance increased, and it looks like leveraged loans are making a comeback.
After the June FOMC meeting, the Fed forecast that 2015 unemployment would come in at 5.2% to 5.3%, a drop from its March forecast of 5.0% to 5.2%.
Mortgage REITs such as Annaly Capital (NLY), American Capital Agency (AGNC), and MFA Financial (MFA) are rooting for the Fed to maintain low rates for as long as possible.
The ten-year bond yield rose by 3 basis points last week. Ginnie Mae TBAs sold off and lost 6 ticks to 104 4/32, underperforming Fannie Mae TBAs.
Fannie Mae TBAs started last week at 103 17/32 and picked up 1 tick to go out at 103 18/32. The ten-year bond yield rose by 3 basis points.
Last week, mortgage rates rose while bond yields fell. While the ten-year bond yield rose from 2.16% to 2.19%, mortgage rates fell from 3.93% to 3.90%.
After closing out the prior week at 2.16%, bond yields, as tracked by the iShares 20+ Year Treasury Bond ETF (TLT), rose by 3 basis points to go out at 2.19%.
Last week had some important industrial data, with industrial production and manufacturing production. Both numbers were better than expected.
The markets are usually dull in late August, and there just isn’t much coming up this week to move them. The biggest data will be housing starts and building permits.
In July, the labor force participation rate held steady at 62.6%, which is the lowest since 1977.
The Obama administration increased employment costs by having the Department of Labor mandate time-and-a-half overtime pay for workers who had previously been classified as managerial.
The unemployment rate was unchanged at 5.3% in July, or about 8.3 million people. The underemployment rate slipped 10.4%, and the labor force increased by about 69,000 people.
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