Mortgage Rates



Greece got its bailout money early this morning, yesterday Europe’s markets rallied on the news, today Europe’s equity markets are weaker. Finance ministers awarded 130 billion euros ($173 billion) in aid, engineered a central-bank profits transfer and coaxed investors into providing more debt relief in an exchange meant to tide Greece past a March bond repayment. Stocks fell and the euro fluctuated as investors speculated the deal won’t fix Greece’s long-term challenges. The assistance brings to at least 386 billion euros the sums spent or committed to save Greece, Ireland and Portugal from bankruptcy. A step in the right direction, but still some hurdles remain. Greece has to enact the prescribed austerity and economic reforms that could prove too much to deliver amid a fifth year of recession, and risk falling foul of social unrest and upcoming elections. Greece met a key condition for aid by spelling out 325 million euros in additional spending cuts. The International Monetary Fund must now decide how much it is willing to contribute to the package. While a euro-zone statement spoke of a “significant contribution” from the IMF to the three-year loan package, it was unclear whether the fund would stick to its practice of delivering a third of the aid money. Greece isn’t going to be left all alone dealing with their budgets; a European Commission task force will be put in place in Greece in an “an enhanced and permanent presence on the ground” to improve the workings of the Greek bureaucracy, according to the statement.

For the moment Greece has stepped back from the cliff; while there is a certain amount of relief around the world that Greece won’t default for now, the longer outlook isn’t that rosy. Greece is unlikely to avoid defaulting on its debt, the austerity and spending cuts achieved by EU leaders and Greek politicians is so draconian that in the end Greek citizens and politicians will not be able to carry lout the demands placed on the conditions to get the bailout. Likely not news to Europe’s leaders but they did manage to plug the dike for while the Union wrestles with Portugal and Ireland. That Greece will eventually fail isn’t a concern now; in a year or two it will not be able to abide the rules set down unless the rules are relaxed; markets will worry about it later.

US interest rates a little higher on the Greek news; the 10 yr note at 7:00 am -10/32 at 2.04%. More lifting of the safety hedges that have been in place for months on concerns Greece would be forced into default, unable to meet the demands from the EU and ECB. US stock indexes a little better but not much; both markets still assessing the details from the Brussels summit. Although treasuries are starting soft the MBS markets are improved this morning from Friday’s closes. Recently the mortgage markets has held well in the face of a little weakness in treasury markets.

There are no data points today; this week’s economic calendar has Jan existing and new home sales and $99B of Treasury auctions as main scheduled drives. Although Greece has dodged default there are still some key elements to be resolved; how much will private creditors have to swallow, and how much will the IMF contribute? Those questions will be answered positively but still some concerns remain.
At 9:30 the DJIA opened +28, the 10 yr note -12/32 at 2.04% +4 bp, but mortgage prices continue to hold well, up 5/32 (.15 bp). MBSs are seeing increased demand since the HARP 2 plan was announced, investors seeking yield less fearful of MBSs as they begin to realize that the new MBS coupons have good loans instead of the bad loans that made up pools a few years ago. The yield differential between the bellwether 10 yr treasury and 30 yr mortgages is narrowing. By 10:00 the DJIA fell back to unch.

Crude oil is up over $104.00/barrel this morning on increasing concerns over Iran and its sanctions; Iran saying it won’t sell oil to Britain and France. The two countries don’t purchase much oil from Iran however it is the fear factor of further disruptions that is propelling oil prices higher, in the last eight days crude has jumped $5.00/barrel.