Rate Update May 21, 2010

Mortgage rates priced slightly better again this morning.

Yesterday’s drop in the stock market provided further fuel to the “flight-to-quality” trade that has led to lower interest rates here in the US.  This morning the Dow Jones Industrial Average fell 150 points at the open but has since recovered.

The Greek fiscal problems initially created concerns that Greece would default and a few European banks would suffer losses.  Then, the magnitude of the fears grew to include defaults on the part of other EU countries such as Portugal and Spain.  Now, some analysts are saying the Greek debt crisis will lead to a severe recession and the eventual breakup of the EU.  I don’t see that happening but that type of emotional response is what is driving investment money into the US and driving down yields.

No one is even paying attention to economic indicators right now.  We remain in a neutral position.

Current outlook: neutral