Mortgage Rates



The bond and mortgage markets started a little weaker this morning with stock indexes better. Not surprising however after the run the bond market drove long term rates (10 yr) down from 1.90% to 1.70% over the last five sessions, and the stock market down 9 of the last 10 days. The financial markets remain bullish for interest rates and bearish on stocks. There are no economic reports to think about today.

The day’s big event is Facebook going public today; the stock will begin to trade at 11:00 am at the IPO price of $38.00.

Moody’s Investors Service downgraded 16 Spanish banks last night, citing the nation’s recession, reduced funding access for lenders and deterioration in loan quality that will spread beyond real estate to household and company loans. Concern more bad loans will come to light at Spanish banks has driven up the country’s borrowing costs on speculation the final bill may hurt government finances. Spanish 10-year bond yields surged to 6.46% this week, the highest since November. The yield slipped 7 basis points to 6.21% today. With unemployment topping 24 percent and the economy set to shrink 1.8 percent this year, according to International Monetary Fund estimates, analysts say the state will need to impose more charges on banks as the slump damages assets beyond real estate.

In China, prices of new homes fell from a year earlier in 46 of the 70 cities tracked by the National Bureau of Statistics, the agency said today. Many analysts are lowering its estimate for China’s second-quarter growth after weaker-than-forecast economic data released last week. The nation’s expansion may drop to a 13-year low this year. The slowing global economies are directly yield to Greece and other European economies as the region continues to be unable to stop the concern that Greece’s debt problem will eventually force it out of the 17 member Union and spread to Ireland and Portugal; Spain also suffering and becoming more a concern.

Angela Merkel and fellow European leaders will face pressure from their G-8 counterparts to do more after speculation Greece will exit the euro wiped about $4 trillion from global stock markets this month. The summit starts today in the U.S. Greece has new elections on June17th, in the meantime Germany has to re-think the severe austerity it jammed down Greece and other EU countries with debt default concerns. France’s new President and the recent inability in Greece to form a government that will accept the draconian spending cuts pushed by Germany. It isn’t news that Europe is in complete turmoil as no matter the debate, in the end there is not enough money to fend off eventual defaults. It keeps on dragging on but reality is increasingly sinking in that defaults and bank failures are inevitable.

Some minor price declines today in the bond and mortgage markets, but the outlook remains positive for lower rates. The 10 yr and mortgages have made a huge run over the week or so, a slight pullback isn’t unusual. At 9:30 the stock market (DJIA) opened +45 but by 10:00 the key indexes were having trouble holding gains. 1.70% on the 10 yr note is a technical resistance level that held the rally last Sept; this time though we expect the 10 will move below 1.70% with the potential of 1.50%, especially if traders believe the Fed will launch anther QE. Given the decline in economic outlooks around the world the Fed is more likely to ease again to continue pushing rates lower and with the intent that investors will be forced into the stock market and business will increase spending; at least that is what many believe.