The market buzzed with excitement as the largest exchange-traded fund specializing in home construction marked its most remarkable day in six months on Wednesday. Investors eagerly anticipated the potential for reduced mortgage rates following a moderation in U.S. inflation which led to a decline in the crucial 10-year Treasury yield (US10Y).
The iShares U.S. Home Construction ETF (BATS:ITB) surged by 4.6%, showcasing its most robust uptick since mid-December 2023. Similarly, the SPDR S&P Homebuilders ETF (XHB) experienced a 4.4% upswing, its largest leap since the middle of December. These impressive gains coincided with a drop in the U.S. 10-year Treasury yield to its lowest level since the end of March.
The 10-year Treasury yield (US10Y) tumbled by 14 basis points to 4.26% after data revealed that U.S. core CPI in May stood at 3.4% year-on-year, the lowest figure observed since April 2021.
Traders responded to this by anticipating the likelihood of the Federal Reserve initiating interest rate cuts as early as September. The noteworthy dip in the 10-year yield has the potential to drive mortgage rates down, thereby reducing costs for prospective homebuyers. Notably, the average 30-year fixed-rate mortgage stood at 6.99% in the week leading up to June 6.
During afternoon trading, five major constituents of the ITB ETF (ITB) surged ahead of the Federal Reserve’s June policy announcement:
D.R. Horton (DHI) – up by 4.1%
Lennar (LEN) – up by 3.1%
NVR (NVR) – up by 3.1%
PulteGroup (PHM) – up by 4.8%
Lowes Cos. (LOW) – up by 3.3%
Earlier on Wednesday, the Mortgage Bankers Association reported a rise in mortgage applications, correlated with a decrease in mortgage rates to 7.02%.
Additional home building ETFs in the marketplace include: (NAIL), (HOMZ), and (PKB).
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