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Must-know: Why the government shutdown left the markets yawning

Brent Nyitray, CFA, MBA

Realist Roundup: The federal shutdown's impact on REITs (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), MFA Financial (MFA), and people who invest in homebuilders.

Last week was all about the government shutdown

The ten-year bond sold off slightly last week, with the yield increasing to 2.64%. The markets were expecting some sort of 11th-hour resolution to the FY 2014 budget and didn’t get one. The shutdown should be modestly bond bullish in that it keeps the Fed on hold, at least through the October meeting. While the government is officially shut down, most functions are still operating. The net drop in government spending has been estimated to be around 13%, which equates to about 8 basis points weekly in GDP reduction.

Due to the government shutdown, many economic releases are delayed. The biggest one was the all-important jobs report, which was scheduled to be released last Friday. The lack of this report made the ADP jobs report all that more important.

In upcoming 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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