Why bonds ended the week flat after a “meh” jobs report



Why follow this weekly real estate roundup?

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 - LT

Bonds sell off mid-week and then rally back to closed basically unchanged

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Bonds opened the week under pressure after some strong economic data. The ISM Milwaukee survey came in much stronger than expected, although the Chicago Purchasing Manager Index was weaker. On Wednesday, bonds sold off on the better-than-expected factory orders numbers. The ADP jobs report came in around expectations, although the revisions were strong. These two things pushed bond yields up to 2.8%. 

Finally, on Friday, we had the jobs report, which could be characterized as “okay.” Payrolls rose by 192k (the first time in a long time the ADP number predicted the BLS number), but the unemployment rate was unchanged at 6.7% and the labor force participation rate rose to 63.2%. Average hourly earnings were flat, but hours rose. The jobs report was neither strong enough nor weak enough to change the Fed’s thinking at all.

After starting the week at 2.73%, bonds rallied to finish the week at 2.72%. So overall, bonds sold off early in the week but recovered their losses on Friday.

In the next parts of this series, we’ll look at trading in the TBA market (which is the basis for mortgage rates), see where mortgage rates have been for the week, and then discuss past and upcoming economic data.


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