Rate Update May 17, 2010

Mortgage rates are priced better this morning.  Somehow it doesn’t seem to quite matter as much though, click HERE to find out why.

According to this morning’s Treasury report China was a net buyer of US Treasury debt in March.  This marked the first time in 6 months that the Asian giant bought more US debt than they sold.  This helps to explain why US interest rates have remained low despite the departure of the Fed from the mortgage-backed bond market in late March.  As long as the Greek debt crisis is front and center we expect foreigners to continue to show strong demand for US debt.

Speaking of the Greece, focus remains on the EU and whether or not they’ll be able to navigate themselves through these treacherous waters.  Concern over sovereign debt coupled with the volatility in the stock market is reminding investors that risk is part of the game.  For investors who are risk-adverse they are continuing to find “safe-haven” in the form of US debt securities.  The additional demand is what is driving rates lower.

Looking ahead for the week we get important inflation data tomorrow and Wednesday plus minutes from the last Fed meeting which can also drive the markets.

The “flight-to-quality” trade remains in force so I’ll recommend a floating stance.

Current outlook: neutral