Investing in homebuilders and REITs after the March FOMC (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 fixed income ETFs like TLT or in homebuilders.
Bonds sell off on the FOMC meeting
Last week, bonds sold off after the FOMC meeting. The Federal Open Market Committee maintained rates and cut asset purchases by another $10 billion a month. The committee decided to de-emphasize the 6.5% unemployment target and take a more holistic approach to deciding when the labor market has strengthened enough to raise rates.
The Fed used language in the press release saying that it may be appropriate to keep ultra low interest rates for a “considerable period” after the Fed has ended quantitative easing. Later in the Q&A, Janet Yellen remarked that “a considerable period” could mean as short as six months. This spooked the bond market and stocks followed.
We had some important manufacturing data last week, with industrial production, capacity utilization, and manufacturing production. These numbers were generally stronger than expected, although January was weak. We also had housing data, with housing starts and building permits. Housing starts were lower than expected, while building permits were better and signal a growing pipeline of homes.
After starting the week at 2.65%, bonds rallied to finish the week at 2.74%.
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.
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