Commentary: One down and one to go.
The Greek parliament approved a five-year austerity plan earlier today - clearing the first of two hurdles that will allow the country to secure bailout funds to prevent a major financially crippling default on their sovereign debt.
Attention now shifts to the vote on the second bill tomorrow that will authorize implementation of the measures set forth in today's legislation.
A successful affirmative vote on this second measure will likely be followed by a collective sigh of relief from the global credit markets. Against this backdrop there is a very strong chance capital will temporarily flow out of its current safe-harbor parking places like dollar-denominated Treasury debt obligations and mortgage-backed security into riskier but higher yielding assets like stocks. Such a scenario, should it develop, will almost certainly produce a period of modestly rising mortgage interest rates.
Should the Greek parliament fail to ratify the second measure with tomorrow's vote global investors will be quick to connect the dots from Greece to Germany to European banks to U.S. financial institutions. Against this backdrop expect stock prices to plummet and Treasury prices to soar as the global market place braces for another major financial meltdown.
It is a very close call. My expectation is that the Greek government will ultimately pass the austerity measure -- and will receive the first round of debt relief - only to default later as civil resistance to the plan proves too strong to overcome. If my assessment proves accurate, mortgage interest rates will likely creep fractionally higher into the first week or two of July -- before turning the corner and moving lower once again.
In other news of the day the Mortgage Bankers of America have released their Mortgage Application Survey for the week ended July 24th. The composite index dropped 2.7% from the previous week but remain higher than the month ago mark. The number of refinance applications taken during the week dropped by 2.6% while the number of purchase money request dropped by 3.0%.
The contract for 30-year fixed-rate mortgages finished at 4.46%, down 11 basis points from the prior week, down 12 basis points from the month ago mark, and down by 21 basis points compared to the same time a year ago. Refinance requests represented seven out of ten loan applications taken last week.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
