Mortgage Rates



Interest rate markets opened weak this morning with stock indexes better. Europe’s equity markets better on increasing belief Greece and Europe’s officials will actually get a deal completed at the summit meeting on Monday. Very early today the 10 yr note yield hit 2.04% (+6 bp) and MBS prices were off 8/32 (.25 bp) frm yesterday’s closes; by 9:00 some support was seen, the 10 yr moved back down to 2.02% and stock indexes backed off a little. 8:30 this morning Jan consumer price index data, the overall CPI increased 0.2% while the core (ex food and energy) also increased 0.2%, both in line with estimates. Yr/yr over CPI +2.9%, the core +2.3%; the yr/yr increase is somewhat troublesome with the core now +2.3% and at least pushing the Fed’s target level. As noted yesterday, the Fed prefers the personal consumption expenditures as its inflation gauge rather than total focus on CPI, nevertheless with oil prices climbing higher never-ending concerns over inflation was heightened on the data.

Will Greece get its money to avoid default? That question has been dominating markets since last July, on again-off again for six months with no resolution. The clock is ticking now, Greece has until March 20th to find the funds needed to pay for maturing debt (actual default would occur on March 27th). With all the comments coming from every official in Europe it is very difficult and sometimes confusing trying to follow the events as they unfold, however we believe Greece will get its bailout this go-round, what happens when the next maturities occur another bailout is unlikely. Presently markets in Europe and the US are betting on a deal being completed. Italian Prime Minister Mario Monti, German Chancellor Angela Merkel and Greek Prime Minister Lucas Papademos expressed optimism that an agreement on Greece can be reached at a Feb. 20 meeting of euro-area finance ministers.

At 9:30 the DJIA opened +35, NASDAQ -3; 10 yr note at 2.03% +5 bp and MBS prices -5/32 (.15 bp) frm yesterday’s closes.

The last data this week hit at 10:00; Jan leading economic indicators were expected up 0.5%, as reported up 0.4%; no reaction to the report.

Crude oil continues to increase; this morning over $103.00/barrel. Crude higher on concerns about Iran threats to close the straits of Hormuz and belief a deal will get done with Greece. US stock indexes improving also implies an increase in demand. So far markets haven’t been concerned that rising gasoline prices will negatively impact economic improvement.

After the weak start in the bond market this morning, since 8:30 there has been little movement or change in either stocks or bonds. Monday US markets will be closed for President’s Day, the day that Europe is expected to hold its summit in Brussels to accept the austerity plan in Greece and approve the bailout. With our markets closed traders are positioning ahead of time; right now it appears Greece will get the money, but we have been here before only to see Europe’s officials back away. Will this time be different? Likely it will because the clock is ticking down, not a lot more time to fiddle anymore; talk is over.

The 10 yr is softening, now well above its 40 day average on the yield and its relative strength bearish. There is a little support at 2.08% but major long term support is at 2.12%, the highest level since early Dec. We still don’t believe rates will increase in any significant way as long as the Fed is intent on keeping short term rates low. That said, we also believe the lows in US rates have been achieved; unless Greece defaults or the economic outlook reverses from the positive outlook that is driving stocks higher interest rates will not fall much.