PAPADEMOS ANNOUNCED THAT GREECE HAS AGREED TO FURTHER CUTS WHICH WIL PAVE THE WAY FOR ANOTHER BAILOUT

Mortgage rates are priced slightly worse this morning.

Greece’s Prime Minister Lucas Papademos announced today that the major political parties have agreed to additional austerity cuts which are a condition for Greece’s creditors to accept discounts making it possible for the ailing country to stave off default…..for now.  Good news for Greece is bad news for US interest rates.

Also pressuring rates higher is a better than expected weekly jobless claims report.  The report showed that the number of people filing for unemployment benefits declined by 15,000.  Analysts had expected a modest increase.  Good news for the economy is bad news for mortgage rates.

The US Treasury will auction off the final leg of its $72 billion in debt sales for the week.  Today, they will deliver $16 billion in 30-year bonds.  The combination of long duration debt supply AND better than expected economic news will make it tough for interest rates to improve in the near term.  I will maintain a locking position.

Current Outlook: locking

All eyes remain on Greece as political leaders from the four major political parties meet there to discuss if they’ll agree to further austerity cuts which European & International Monetary Fund officials are demanding in exchange for concessions on existing debt holdings.

PROTESTERS IN GREECE ARE MAKING IT HARD FOR OFFICIALS TO AGREE ON AUSTERITY CUTS

Greek politicians are in a tough spot because concessions from creditors are needed immediately to avoid a disorderly default but Greek citizens are protesting in mass over spending cuts which will further depress growth in the economy.

Mortgage rates have increased by about .125% over the past week on better than expected jobs data (last Friday) AND the expectation that Greece will avoid a disorderly default which could trigger financial contagion in Europe.  However, even if Greek officials reach an agreement in the near term it does not resolve the long-term debt problems in Europe so mortgage rates will likely remain relatively low.

Mortgage rates will have to compete with US Treasuries again today.  The US Treasury is scheduled to auction $24 billion in 10-year Treasury notes.  Strong demand will help rates remain low and vice versa.

I will keep a locking bias until this weeks debt auctions are complete.

Current Outlook: locking bias

HAVE GREEK OFFICIALS FINALLY REACHED A DEAL?

Rumors out of Europe suggest that Greece is finally getting close to reaching a deal with creditors that would allow the ailing country to avoid default…….for now.  Like previous stories which have broken on the subject there is a lack of details for the markets to digest.

Interest rates in the US appear poised to move higher if indeed Greek officials can announce a plan that would help it avoid default…..for now.  In addition, the US Treasury is set to auction $72 billion in fresh debt supply over the next three days which will make it difficult for rates to improve much.  The auctions kick off today with $32 billion in 3-year notes.

I will shift to a locking position.

Current Outlook: locking bias

Three weeks after Greek officials announced they were “close” to reaching a settlement with debt holders there is still no deal.  The markets still believe that they will manage to reach an agreement prior to a “disorderly default”, which would be disastrous for the European financial system.  Should investors grow pessimistic about the outlook it would likely trigger a “flight-to-safety”, which would help interest rates here in the US.

The economic calendar is pretty light this week.  The US Treasury is set to auction $72 billion in new debt.  The auctions kick off tomorrow with $32 billion in 3-year notes.  Click HERE to understand how government borrowing can impact mortgage rates.

Current Outlook: neutral

When mortgage rates touched all-time lows on Tuesday I shifted my outlook to locking.  In hindsight I shifted 3 days too early but when it comes to locking rates it usually better to lock in too early than too late.

Interest rates are responding to a much better than expected monthly jobs report released by the Labor Department earlier today.  The report showed that the private sector added 257,000 new jobs in January (offsetting 12,000 in government job cuts).  They also revised higher previously released figures for November & December.  Overall the report is good news for the economy which is bad news for mortgage rates.

Also fueling optimism about the economic recovery was this morning’s Institute for Supply Management service sector index.  The monthly report showed better than expected activity for the month of January.

Meanwhile, there is still no debt deal between Greece and its creditors.  The markets continue to expect that a deal will get worked out and financial contagion will be averted but if not, I would expect US interest rates to decline slightly as investors rush for “safety”.

Current Outlook: locking

There’s not much going on in the interest rate markets.  Maybe this is the calm before the all-important jobs report storm?

The second leg of this week’s employments reports showed that the number of people filing for jobless claims declined by slightly more than expected last week.  The question analysts have is whether the decline is credited to people finding work or giving up looking because of dull prospects?  We should learn more tomorrow when the Bureau of Labor Statistics releases the jobs report for January.  The markets are currently expecting an unemployment rate of 8.5% (the real unemployment rate is probably closer to 15%) and 170,000 new jobs created in the private sector.

Greece has yet to reach an agreement with creditors to lighten the ailing county’s debt load.  The markets should not be surprised.  European officials have been promising swift reforms for 2 years and yet major risks continue to hang over the continent.  Investors in Spanish debt showed confidence, however, earlier today when demand for a bond auction exceeded expectations.

Mortgage rates continue to hover at all-time lows.  I continue to recommend locking in.  How much better can rates get versus how much higher could they rise if the Greeks strike a deal?

Current Outlook: locking

The first of three employment reports was issued this morning.  The private payroll company ADP released its version of the monthly jobs report earlier and it showed the US economy added 170,000 new jobs in January which was slightly less than expectations.  Currently, the markets are expecting 145,000 new jobs to be reported in Friday’s all-important jobs report.

In other economic news, manufacturing activity was reported better than expected in China, Germany, and the US.  The trifecta of reports has investors hoping that the global economy can weather the headwinds of the European debt crisis.  Good news for the economy is typically bad news for mortgage rates.

Greece is still looking for a settlement with existing debt holders to accept a steep discount so that the ailing country can remain solvent.  Still no agreement at this point.

The 10-year US treasury note, which mortgage rates loosely follow, has traded between 1.80%-2.20% for the past few weeks and it is currently at the low end of that range so I recommend locking.

Current Outlook: locking

Interest rates looked like they may worsen yesterday afternoon after European leaders agreed to a new fiscal pact which includes tighter measures on member state’s budgets and a new round of bailout money.  However, this morning interest rates have stabilized on renewed concerns over Portugal and the US economic recovery.

A LACK OF A DEBT DEAL IN GREECE IS CAUSING CONCERN OVER PORTUGAL

A lack of a deal between Greece and its creditors has investors concerned about the financial health of Portugal.  Yields on Portuguese debt rose sharply this morning which helps create demand for US-denominated debt securities including mortgage-backed bonds.

In economic news, consumer confidence fell sharply in January according to new data from the Conference Board.  This has investors worried about consumer spending in the coming months.  In housing the S&P Case Shiller-Home Price Index showed that home prices continued to fall around the nation as of November.  The year-over-year 20-city index fell by 3.7%  and in Portland home prices fell by 4.8%.

I am going to shift to a locking bias since rates are back at all-time lows and its expected that Greece will reach a deal with creditors later in the week.

Current Outlook: locking

Mortgage rates have dipped back down to all-time low levels following the Fed’s cautious comments last week.  Optimism had been rising regarding the strength of the US economic recovery and now analysts believe the road may turn rocky once again.

AMERICANS CHOSE TO SAVE THEIR EXTRA INCOME IN DECEMBER

The economic calendar will either validate or refute the Fed’s outlook.  The Commerce Department reported that personal incomes grew at a slightly faster clip in December than expected.  However, spending rose by less than expected signaling that Americans are choosing to save their extra cash  instead of consuming it.  This week is employment week so beginning on Wednesday we’ll see the ADP jobs report followed by weekly jobless claims and the all-important jobs report on Thursday & Friday.

Nothing new to report in Europe.  Greece continues to negotiate with private creditors on a discount to its outstanding debt.  If they are unable to secure a deep enough cut then it would result in a disorderly default which would be bad for the EU and help US interest rates.

Current Outlook: neutral