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Economic strength lifts the 10-year bond yield higher

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The ten-year bond yield is the basis for long-term interest rates

The ten-year bond influences everything from mortgage rates to corporate debt. It’s now the benchmark for long-term US interest rates. Old-timers might remember when the 30-year bond was the benchmark, but that changed in the 1990s. When investors want to know what’s going on in the bond market, they in essence want to know where the ten-year bond is trading.

Note that short-term rates are still important, particularly the London interbank offered rate (or LIBOR), which is the base rate for almost all short-term rates.

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Rate information is relevant to mortgage real estate investment trusts (or REITs) like American Capital Agency (AGNC), Annaly Capital (NLY), Hatteras (HTS), Capstead (CMO), and MFA (MFA). It’s also helpful for people who invest in homebuilders and fixed income ETFs like the iShares 20+ Year Treasury Bond (TLT).

Bond yields consolidate after the strong jobs report

Bond yields have been subject to the push-and-pull effect of European weakness versus US strength. As Europe slips into recession and investors fret over the situation in Greece, we’ve seen a massive flight to quality. This movement has dragged bond yields lower in Europe, which has pulled US yields lower. Last week, we began to see a bit of a “risk on” trade, as Greek sovereign yields fell and investors sold G7 bonds to buy stocks.

US Treasuries picked up another 10 basis points to close out at 2.05%. Overall, we’ve seen the 10-year bond yield pick up 41 basis points over the past two weeks. US data was on the strong side, especially the JOLTS report, although we did see some signs of improvement in Germany as well.

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