Daily Commentary by Larry Baer: what is Yesterday euro zone finance ministers rejected as insufficient an offer made by private bondholders to help restructure Greek sovereign debt. The disagreement increases the risk that it will prove impossible to strike a voluntary restructuring deal between Greek creditors and the Greek government - an outcome that would have severe repercussions for financial markets around the globe. Talks will continue this week with the hope of reaching an agreement no later than next week Monday.
As I mentioned in this space yesterday - this week's three-part $99 billion Treasury debt auction, Federal Open Committee meeting, and smattering of macro-economic news will likely prove to be little more than background noise as mortgage investors wait to hear if Greece and its private creditors have reached an agreement on restructuring outstanding Greek debt obligations. Without an agreement in place Greece will not be able to pay back $18 billion of bond debt next month. Failure to meet the March 20th deadline is expected to send massive financial shockwaves through Europe -- with tremors felt around the globe. Against such a backdrop mortgage interest rates will almost certainly move sideways to fractionally lower - but the pool of borrowers capable of meeting income based qualifying ratios will almost certainly decline as our domestic economy cools on a global slump in demand for U.S. produced goods and services.
As long as this threat of financial collapse in Greece exists - vast amounts of European capital will remain "parked" in very low yielding but very safe assets like U.S. government debt issues and agency eligible mortgage-backed securities. Should clear signs develop suggesting European debt crisis pressures are beginning to recede even slightly - look for European capital to begin to move slowly from its current safe harbor in search of higher yielding but higher risk opportunities - a condition almost certain to put progressively stronger upward pressure on mortgage interest rates here at home.
I will keep you posted as this story develops.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
