Mortgage Rate Update March 1, 2012

Mortgage rates are higher this morning as investors shift capital away from “safe-haven” assets such as US mortgage-backed bonds into “riskier” assets.  What is causing this shift?  There is increased optimism regarding the European debt crisis this morning.

Following yesterday’s announcement of €529.5 billion in loans by the European Central Bank to financial institutions investors are more confident that the additional liquidity will help the continent avoid financial collapse.  Italian Prime Minister came out today and said that the worst may be over for cash-strapped governments in the region.

Developments in Europe are overshadowing fresh economic data here at home.  The Commerce Department reported that personal incomes & spending rose by slightly less than was expected last month.  In a separate report the Labor Department reported that the number of people filing for jobless benefits fell again last week.

In my view this morning’s shift is sentiment regarding the European debt crisis is probably temporary.  Interest rates have risen to the higher end of the range they’ve traded in since November.  Should rates break out of this range then I will shift to a locking stance.  However, I expect after the euphoria subsides rates will cycle back lower.

Current Outlook: floating bias