Mortgage Rate Update November 7, 2011

Mortgage rates are unchanged this morning.

The economic calendar is very light this week so focus will be even more focused on developments in Europe.

Leaders of Greece’s two main political parties announced over the weekend that they would seek a mutually agreed upon replacement for current Prime Minister George Papandreou.  In and of itself the leader of Greece is of no matter to International investors.  The reality is that no matter who holds the position Greece will have to face severe cuts in order to get its fiscal house in order.  Even then the embattled country will default on its debt and/ or private investors will have to accept steep discounts.

The financial markets are now watching Italy closely.  Last week yields on Italian debt rose to the highest premium relative to German debt (known as “ credit spreads”) since the EU was formed.  Should Italy face default this could get scary  which would likely push US interest rates lower.  Italy has the 3rd largest government bond market in the world (behind Japan & the US) and as we noted last week the EU bailout fund is not big enough to deal with it.

There is a lot of fear & uncertainty regarding Europe and that typically leads to lower interest rates here in the US.  As we know though sentiment can shift rapidly so stay tuned.  Interest rates may have trouble moving lower this week because the US Treasury is set to auction $72 billion in new debt supply.  I will start the week off in a neutral position.

Current Outlook: neutral