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10 year bond finally trades with a 3 handle

Brent Nyitray, CFA, MBA

Realist Real Estate Roundup 12/23-12/27 (Part 1 of 7)

Why follow the weekly Realist 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 sell off thin volume during a holiday-shortened week

Last week was the Christmas holiday, and most trading desks were staffed by junior people told not to take positions unless they had to. Also, most of Europe takes off the days around Christmas as well. Bond yields drifted up throughout the week, finally trading above 3% on Friday.

Personal spending comes in strong

Personal spending rose .5% while personal incomes rose .2%. Several publications wondered if this meant that we are heading for the good old days (or bad old days) of where consumers spent more than they made, primarily by the use of credit. Actually, this is more or less how recessions end. Consumers spend because they have to, not because they want to. Eventually the clothes wear out and the car becomes unreliable and needs to be replaced. This additional spending is what creates the virtuous cycle of economic growth. Once the unemployment rate begins to fall, we will start to see wage growth.

Good housing data

The Federal Housing Finance Agency Home Price Index rose .5% month-over-month, and prices are now within 10% of their peak levels. This will mean great things for the economy, and especially the labor market as it will encourage mobility, which is what the economy has desperately needed.

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.

Continue to Part 2

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