Mortgage Rates

MBS prices are now up on the session (FNMA 3.50 +9/32), after an early dip lower. US data had bonds selling off (rates up) in early trade, but remaining doubts about the EU’s ability to control the current debt crisis drove investors back into dollar-denominated bonds (rates down). Initial Jobless Claims (381k vs. 395k est.) and Wholesale Inventories (1.6% vs. 0.2% est.) came in better than expected, driving the early drop in bond prices. Then, comments from European Central Bank President Mario Graghi disappointed investors who expected stronger intervention (more quantitative easing, bond buying) by the mammoth Fed-like entity. The EU drama continues to be the focal point of trade for most investors, as we await the conclusion of yet another summit in the Euro zone. So far, the outcome of these brainstorms have been essentially meaningless, but the markets seem optimistic once again, that the union will come up with something tomorrow. It seems like we are being set up for yet another disappointment, but that would be good for interest rates, so it’s not all bad for the mortgage industry.



Tomorrow, Friday, 12/9, as indicated above, will bring the final day of an EU Finance Ministry Summit, whose primary goal is to decide how the union is to proceed in dealing with the debt crisis. As we have discussed, there is definitely a difference of opinion amongst the members. The problem is that many of these differences seem rooted deep in the ideologies of each country. On one hand you have a fiscally conservative Germany, and on the other, a socialist-type like France. There are 17 of these different countries, and each is different, other than sharing a currency. Time will tell whether or not an understanding can be reached, but expectations are now quite low for anything to be resolved tomorrow. It is hard to tell for sure, but it is likely that a complete failure tomorrow may send US rates lower, as money flows back into US safety plays, while an ground-breaking agreement may send rates higher. If the summit passes with a so-so outcome, like so many others before it, we may see little marker reaction after all of this week’s chatter. US data tomorrow will likely be ignored, but we do have the Consumer Sentiment number (est. 65.1) and the Trade Balance (est. -44B).