Why bonds rallied on weak releases and international tensions

Market Realist

Get ready for earnings reports from heavyweights like PulteGroup (Part 3 of 6)

(Continued from Part 2)

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. 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.

Weak economic data and geopolitical tensions ignited the rally

The bond market returned to its recent pattern of ignoring bond-bearish data and rallying on bond-bullish data. We did have some positive economic data in some regional Fed reports. But the industrial data and the housing data were definitely weak.

The Malaysian jetliner that was shot down over Ukraine pushed bonds higher as well. It will probably have a limited impact on the economy overall. But the macro investor playbook says to buy U.S. Treasuries on signs of international instability. After starting the week at 2.55%, bonds rallied seven basis points. They finished at 2.48%.

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.

Continue to Part 4

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