Rate Update April 28, 2010

Mortgage rates are priced slightly worse this morning.

Mortgage rates improved slightly yesterday afternoon following my post of ‘rate update’.  This occurred after it was announced that S& P had downgraded Greece’s credit rating to “junk status”.  This provided additional fuel for the “flight-to-quality” trade that has helped interest rates ease in the past few weeks.

Flight-to-quality pushes rates down

This apparently spooked European leaders so today we wake to news that Germany and the IMF are increasing their efforts to get Greece on a sustainable fiscal path.  I’ve reported on ‘rate update’ all along that when Greece delivers a credible fiscal plan we’d likely see rates increase back to where they were pre-Greece crisis.  Bonds are trading lower today which may threaten to push mortgage rates higher.

The US Treasury is set to auction $42 billion in 5-year notes today.  Given that sentiment has shifted on Wall Street I wouldn’t be surprised to see demand for this offering come in lower than expected which would hurt mortgage rates.

Later today the Fed will deliver the post-monetary policy statement.  They are widely expected to leave rates unchanged.  I’ll be listening to see if they mention anything about plans to begin selling assets off their balance sheet.  They currently hold $1.25 trillion in mortgage-backed bonds so if they begin selling these assets it would increase the supply of these securities and put upward pressure on rates.

We’re beginning to see some volatility so the safe money will lock.

Current outlook: locking