A two-month rally in the credit market has pushed the yields on most U.S. government debt instruments to their lowest levels in six-months. Investors are almost evenly split between those who believe conditions are ripe for interest rates to move yet lower on weakness in the stock markets and continuing European debt concerns – and those who believe the U.S. stock market is poised to begin a summer rally within the next week or two -- and that credit rating agencies will soon be forced to downgrade U.S. securities as the government debt ceiling approaches critical mass on August 2nd. I’m not sure which of these two views of the future market conditions will prevail. There are certainly convincing arguments being made by each side. I do see a number of signals suggesting one of these two camps will take dominance over the other before the month draws to a close. In my opinion -- a notable shift in the trend trajectory of mortgage interest rates will probably occur by the week ended Friday, June 17th. Consider using the strategies outlined above as you structure your risk management tactics for the balance of the month and beyond.
In the absence of top-tier economic data today and before the results of the three-note auction are posted -- look for investors to take directional cues for mortgage interest rates from trading action in the stock markets. Higher stock prices will tend to push mortgage rates fractionally higher while lower stock prices will likely prove supportive of steady to perhaps fractionally lower mortgage interest rates.
THE MARKET IS ALWAYS RIGHT! … YOU AND I ARE SOME OF THE TIME
