Why emerging market woes affect REIT earnings, bonds, and jobs (Part 1 of 7)
Why follow this weekly real estate roundup?
The roundup is a weekly series in which we discuss the week’s trading in government bonds and TBA (To-Be-Announced) 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 REITs like American Capital Agency (AGNC), Annaly (NLY), Hatteras (HTS), Capstead (CMO), and MFA Financial (MFA) as well as people who invest in homebuilders.
Bonds rally on the flight-to-quality trade
Last week had some important events for the bond market, but continuing woes in the emerging markets are driving bond yields lower. Bonds are benefiting from the flight-to-quality trade as investors sell riskier assets. U.S. equities were relatively flat for the week, but volatility is increasing, as the VIX is now over 18.
After starting the week at 2.72%, bonds rallied as emerging markets sold off and finished the week yielding 2.64%.
FOMC meeting and strong GDP growth
The FOMC meeting dominated the headlines, and the Fed reduced asset purchases by another $10 billion per month, bringing total asset purchases down to $65 billion per month. Durable goods orders disappointed, while GDP came in at 3.2%, matching Street consensus.
In the next parts of this series, we’ll look at trading in the TBA market (which is the basis for mortgage rates), see where mortgage rates have been for the week, and then discuss past and upcoming economic data.
Browse this series on Market Realist:
- Part 2 - Must-know: Why Fannie Mae TBAs rallied in sympathy with bonds
- Part 3 - Ginnie Mae TBAs shrugged off the latest tapering announcement
- Part 4 - Mortgage rates fall as homebuilders announce strong earnings