The basis for numerous long-term interest rates
Ten-year bond yields influence everything from mortgage rates to corporate debt. They’re now the benchmark for long-term US interest rates. Some of you 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, in essence they want to know where the ten-year bond is trading.
Note that short-term rates are still important, particularly LIBOR (IntercontinentalExchange London Interbank Offered Rate), which is the base rate for almost all short-term rates.
Rate information is relevant to REITs such as American Capital Agency (AGNC), Annaly Capital Management (NLY), Redwood Trust (RWT), and MFA Financial (MFA). Investors can trade the REIT sector via the iShares Mortgage Real Estate Capped ETF (REM).
Bond yields fall on Greek fears
After closing out the previous week at 2.47%, the ten-year bond yield rose by 21 basis points to close at 2.39% last week. The bond market, as tracked by the iShares 20+ Year Treasury Bond ETF (TLT), rose as market fears over the Greek situation caused a flight to safety. Liquidity was also constrained, as many traders were out on the Thursday prior to the three-day weekend.
While the Greeks did default on their IMF loan, polls had shown the referendum to be basically tied between yes votes and no votes. As a result, traders were reluctant to take positions ahead of the weekend vote.
The consensus seems to be that the first hike will be in September
While the Fed could have moved in June, most participants thought this timing unlikely. The consensus now seems to be that the Fed will move in September, with the caveat that any such move will depend on data. The Fed wants to get off the zero bound—if only to reduce some of the distortions that come from rates this low and to give itself some ammunition if the economy falls into another recession.