Bonds Yawn at June FOMC Minutes
Bonds Yawn at June FOMC Minutes
FOMC minutes from June 2015
When the Fed meets for its Federal Open Market Committee (or FOMC) meeting, it usually puts out a press release that hits the highlights of the decision. The Fed also gives a brief economic overview and sometimes hosts a press conference.
Analysts usually compare the current statement with the previous one, noting any changes in language. The FOMC meeting minutes are much more in-depth. They’re usually ten to 20 pages long.
The minutes include graphs and a two-sided discussion about the argument. They explain the current discussions and give some color on how popular certain views are within the Fed.
Bonds react to the minutes
As you can see in the above graph, some general economic strengths and forecasts of a rate hike have caused bonds (TLT) to sell off for the past few weeks.
The day the Fed released its FOMC minutes began with the ten-year bond yielding 2.24%. Bonds generally didn’t react much to the minutes and finished the day a couple of basis points higher in yield. The Greek situation and the Chinese sell-off definitely are weighing more on markets than the Fed.
Mortgage REITs such as Annaly Capital Management (NLY), American Capital Agency (AGNC), and Nationstar Mortgage Holdings (NSM) are rooting for the Fed to maintain low rates for as long as possible. Increasing short-term rates will raise the cost of funds and could possibly hurt the value of their MBS (mortgage-backed securities) portfolios, if long-term rates rise. However, MFA Financial will be in a better position, given its book is comprised of adjustable-rate securities.
Investors who are interested in making a diversified bet on the mortgage REIT sector should look at the iShares Mortgage Real Estate ETF (REM).
This series will take an in-depth look at the June FOMC minutes and the implications for investors.
Browse this series on Market Realist:
