News that Germany and France are leading a consortium of countries to bail out Greece is threatening the “flight-to-safety” trade which has helped mortgages rates remain low here in the US over the past week.  If details are published and appear credible I expect mortgage rates to increase by .125% or so on the news.

According to the Commerce Department personal incomes grew by a slower than expected pace last month.  Despite the slow growth of incomes Americans somehow managed to increase their consumption spending by a larger than expected clip.  Embedded in the same report is the Personal Consumption Expenditures price index which is the Fed’s favorite gauge of inflation.  The report showed that on a year over year basis inflation remains in check which is a good sign for mortgage rates.

Looking ahead for the week it is not a very busy week in terms of economic data until we get to Friday with the monthly jobs report.  At these levels its tough to imagine interest rates getting significantly better so we’re going to remain in a locking stance.

Current outlook: locking bias

Whenever we see mortgage rates remain within a tight range for an extended period of time we grow increasingly concerned about a “break-out” which is when MBS prices move acutely in a short-time frame.  The catalyst for such a move could come tomorrow with the official jobs report (click HERE to understand why this report is important).

Analysts are currently expecting flat jobs numbers for the month of January.  We’ll also keep an eye out for revisions to previous month’s job figures.  If you’ll recall in December the economy lost 85,000 jobs.  We wouldn’t be surprised to see that number revised lower.

All in all we continue to feel there is more to lose than gain at this point.  We’ll remain in a locking position.

Current outlook: locking

The US Treasury announced yesterday that they would auction $118 billion in note supply next week. The size of the auctions was in line with expectations so it did not impact the markets.

Since the beginning of January mortgage rates have improved along with the yields on longer duration fixed income securities (see the 10-yr Treasury note below). In fact, mortgage-backed bonds have improved on 10 of the first 13 trading days of 2010 (when MBS prices rise it pushes rates lower). This is building up technical resistance which will cause rates to reverse at some point in the future.  The question is when…we’ll keep a locking bias since rates are so good right now.

10-yr Treasury Yield

Current outlook: locking bias

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