A critical input for the housing market
Mortgage rates are the lifeblood of the housing market. The Fed’s plan to help the housing market began when it pushed rates lower to allow people to refinance. The central bank hoped that lowering mortgage rates would also support home prices.
Quantitative easing was a key part of that effort, and the Fed is reluctant to sell its MBS (mortgage-backed securities) holdings for fear of raising mortgage rates too much.
Little movement in the bond market
Mortgage rates have tended to fade big moves in the bond market lately. When rates fall well below 1.9% on the ten-year bond, mortgage rates slightly fall. Similarly, when rates rise to 2.3%, mortgage rates tend to rise slightly.
Mortgage rates have largely ignored the moves in the bond markets lately. Last week, ended December 4, they fell by four basis points while the ten-year bond yield rose from 2.22% to 2.27%. Investors interested in making directional bets on interest rates can look at the iShares 20+ Year Treasury Bond ETF (TLT).
Effect on mortgage REITs
Mortgage bankers such as Nationstar Mortgage (NSM) and Wells Fargo (WFC) are looking forward to 2016 at this point. The Mortgage Bankers Association has put out initial estimates for 2016, and it’s predicting improvement in the purchase business, but a continuing fall in the refinance business, as rates rise.
The drop in prepayment speeds would be good news for mortgage REITs such as Annaly Capital Management (NLY) and American Capital Agency (AGNC) as they are highly-leveraged agency REITs with a lot of prepayment exposure. Non-agency REITs such as Redwood Trust (RWT) tend to swap interest rate risk for credit risk.
Investors interested in trading in the mortgage REIT sector through an ETF can look at the iShares Mortgage Real Estate Capped ETF (REM).
The ten-year bond yield rose by five basis points for the week ending November 27. Ginnie Mae TBAs rose five ticks, easily outperforming Fannie Mae TBAs.
Verizon Communications stock (VZ) closed down 2.09% on Tuesday after the leading US mobile carrier reported mixed results for the first quarter of 2019 before the market bell yesterday.
Several European auto companies want Nokia’s (NOK) patent business subjected to an antitrust probe.
The first-quarter semiconductor earnings season has begun, and the stock market is showing bullish sentiment as investors buy ahead of earnings releases.
Netflix (NFLX) is working its way through a series of price increases in several markets, including the United States and parts of Europe.
Netflix (NFLX) is aiming to add 14.6 million paying subscribers in the first six months of 2019.
Earlier today, the second-largest US automaker, Ford Motor Company (F), announced a plan to invest $500 million in Plymouth-based automotive company Rivian.