April Jobs Report Looms Large This Week (Part 3 of 6)
Ten-year bond yields, the basis for long-term interest rates
Ten-year bond yields influence everything from mortgage rates to corporate debt. It’s now the benchmark for long-term US interest rates. Some might remember when the 30-year bond was the benchmark, but that changed in the 1990s. When investors want to know what’s going on in the bond market, in essence they want to know where the ten-year bond is trading.
Note that short-term rates are still important, particularly the LIBOR (London InterBank Offered Rate), which is the base rate for almost all short-term rates.
Rate information is relevant to REITs such as American Capital Agency (AGNC), Annaly Capital Management (NLY), and Two Harbors (TWO).
Bond yields drift higher as European bond market sells off
After data showed that deflation is not happening in Europe, Euro bond markets sold off hard, with the Bund increasing 21 basis points in yield. This dragged US bonds lower in spite of some very weak economic data in the United States, with GDP (gross domestic product) coming in almost flat and weak ISM (Institute for Supply Management) numbers.
After closing out the previous week at 1.9086%, bonds got slammed and closed out at a yield of 2.1135%. The US economic data were generally weak. However, US bonds have been following European bonds lately. They succumbed to weakness out of Europe, particularly the German Bund, which made quite the reversal last week.
Investors interested in trading in the mortgage REIT sector through an ETF should look at the iShares Mortgage Real Estate Fund (REM). Investors interested in making directional bets on interest rates should look at the iShares 20+ Year Treasury Bond ETF (TLT).
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