Mortgage Rate Update January 20, 2012
After another down day yesterday in the bond markets mortgage rates are worse again this morning. The question now is whether or not rates will continue the path higher or stabilize and reverse lower?
Optimism regarding the outcome of the European Debt Crisis is the main culprit in pushing rates higher. So far this year Spain, Italy, and France have managed to successfully auction off new rounds of debt.
OPTIMISM REGARDING THE EU DEBT CRISIS MAY BE SHORT LIVED.
Furthermore, rumors are that Greece has reached a deal with private creditors to accept even more of a discount to their debt holdings which would stave off a default. A default would trigger credit default swap contracts (which act like insurance) and undermine the stability of the EU financial sector.
However, I believe it’s a little too soon to put this issue in the rear-view mirror. Many of the suspect European nations (i.e. Italy & Spain) have significant debts that need to be refinanced in the first quarter of this year. If they have trouble attracting investors it would likely push interest rates lower in the US. Furthermore, austerity cuts by EU nations are likely to slow economic growth in Europe which would also help rates remain low here in the US.
After being in a locking position for a few days I am shifting back to neutral. However, borrowers should be cautious. How much better are rates really going get?
Current Outlook: neutral
Posted: January 20th, 2012 under Rate Update.
Tags: jan 20 2012 MBS, jan 20 2012 mortgage rates