Daily Commentary by Larry Baer: Greek leaders have clinched a long-stalled deal on financial reforms and austerity measures needed to secure a bailout and avoid a messy sovereign debt default.
The full package must be approved by the European Union, the International Monetary Fund and the European Central Bank by February 15th. Barring any last-minute hitch, the threat of a global credit market shakeup has been averted, at least for the immediate future. Against this backdrop, it is reasonable to expect the "flight-to-quality" of European capital into the relative safe haven of US dollar-denominated assets like Treasury debt obligations and mortgage-backed securities to begin to taper off -- resulting in a slow but steady move to fractionally higher interest rates here at home.
Uncle Sam will be in the credit markets today looking to sell $26 billion of 30-year bonds. The price of these securities has fallen more than 600 basis points in the past four-weeks. The current discounted price level may prove hard for investors to resist. If my assessment proves accurate, today's auction will likely be well bid with little, if any, impact on the current trend trajectory of mortgage interest rates. Today's auction will conclude at 1:00 PM ET and I'll post the results on my website as soon as possible once the final gavel falls.
The Labor Department reported earlier this morning that initial claims for state unemployment benefits dropped 15,000 during the week ended February 4th -- adding to optimism the labor market is improving faster than originally anticipated. Uncertainty about US fiscal policy and worries about Europe's sovereign debt stability remain, but businesses appear to be handling these concerns in stride and are apparently more resilient than initially thought, leading to a brightening outlook for the labor picture. Improvement in the labor sector is typically viewed by mortgage investors as a sign broader economic activity is expanding as well. The "so what" factor here is that as the economy gains steam -- the demand for capital rises - and becomes a condition that makes investors hesitant to push mortgage interest rates notably lower.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
