Must-know: Why bonds rallied despite weakness overseas



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 - LT


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.

Bonds rally on overseas events and weakness

Last week didn’t have a lot of stuff that could move the bond market, but bonds rallied anyway. Weakness in the Eurozone pushed yields lower, and U.S. Treasuries followed along.

We did have a curious revision to the Employment Cost Index, which could have been bond bearish, but it was ignored. Until we have wage inflation in the U.S., we probably won’t have the set of circumstances to launch inflation, so bond investors are focusing on that.

After starting the week at 2.48%, bonds dipped to 2.37% intraday on Thursday and rallied to close the week at 2.42%. Next week has a dearth of data, so investors shouldn’t expect much in the way of movement.


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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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