Mortgage-backed securities (MBS) lost popularity yesterday afternoon following news of a potential deal on the Greek debt crisis. However, as news of on-going political divisions in Greece have persisted, European officials are demanding that the full Greek parliament pass the negotiated austerity package this weekend in order for them to approve the bailout funds. With strikes and protests in the streets of Greece in opposition to the deal, it is highly questionable that the Parliament will find the will to pass the deal. The impact on US mortgage rates has been to reverse the rise seen over the past few days.
In the US today two minor economic reports will provide little impact. Trade balance figures released today were a little worse than expectations. At 10 AM, consumer sentiment figures will be released. Analysts expect this report to also show a decline. Given that the mood this morning supports higher MBS pricing and lower rates, this data will tend to add pressure to that move.
Next week is likely to see a final resolution to this chapter of the Greek debt crisis. The question of course is whether the resolution will be a bailout or a kick out. Either the Greek Parliament will decide that the impact of a disorderly default will be worse than the political upheaval caused by acceptance of the onerous terms of the proposed deal or vice versa. Passage of the deal will result in higher mortgage rates in the US while rejection will result in a return to all-time lows.
On the data front next week retail sales, industrial production and manufacturing data will provide a valuable foundation for traders. If economic growth continues to accelerate, it will have the tendency to push rates higher. Imagine what would happen to mortgage rates if Greece’s troubles are dealt with and US economic growth continues. That is the biggest potential risk for mortgage consumers.
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