Interest rates jumped on the back of a robust jobs report and renewed concern over Fed “tapering,” pressuring rate sensitive mortgage real estate investment trust exchange traded funds.
The iShares FTSE NAREIT Mortgage Plus Capped Index Fund (NYSEArca: REM) fell over 5% during trading Friday and the Market Vectors Mortgage REIT Income ETF (NYSEArca: MORT) dropped more than 4%.
The Bloomberg Index of REITs shares declined as much as 6%, the largest intraday drop since October 2011 on speculation that the Federal Reserve will begin reducing its asset purchasing plan after the better-than-expected employment numbers for last month, Bloomberg reports. [Rate-Sensitive Equity ETFs Smacked on Jobs Report, Rising Yields]
Meanwhile, the benchmark 10-year Treasury bond yield rose a little over 20 basis points to 2.7%. [Treasury ETF Lowest Since Aug 2011 on Fed Taper Talk]
Mortgage REITs, or mREITs, have capitalized on a low interest rate environment, but rising rates will have a significant negative impact on the sector. When the Fed eventually raises interest rates, mREIT yields could fall due to higher funding costs.