Bond Yields Rose after the FOMC Decision
Jobs Report to Highlight a Data-Packed Week
The basis for 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 the LIBOR (Intercontinental Exchange 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 in the REIT sector through the iShares Mortgage Real Estate Capped ETF (REM).
Bond yields rose slightly, but volatility is falling
After closing out the prior week at 2.08%, bond yields, as tracked by the iShares 20+ Year Treasury Bond ETF (TLT), rose by 6 basis points for the week ending October 30 to go out at 2.14%. Bonds rose initially on the no-move decision out of the FOMC meeting but sold off throughout the day. The next day, bonds sold off even further despite the weak GDP numbers.
The Fed talks were hawkish despite the data
One of the interesting details from the FOMC statement was the fact that business capital expenditures are growing solidly. During the week, we saw very weak durable goods orders, and capital goods orders (ex-transportation) fell 0.3%. In fact, the previous capital goods orders number was revised downward from -0.2% to -1.6%. Capital goods orders are considered to be a proxy for business capital expenditures. When the GDP numbers were released on Thursday, the weak spot was gross private investment, which fell 5.6%. It certainly makes you wonder what data the Fed is looking at.
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