Feb

6

By Larry Baer, Market Alert

Greece let yet another deadline slip by today without reaching agreement with its creditors regarding terms of a desperately needed sovereign debt bailout package.  Patience has worn thin among European leaders with Greek “foot-dragging” and there are growing probabilities creditors may choose to simply abandon Greece to its fate rather participate in further negotiations.  The impact of a Greek default by itself would likely be minimal – but it is the psychological damage such a default could do to market participants’ investment psyche that could cause the global economy to slip back into recession.  Until this matter is resolved and a disorderly financial collapse of Greece (and by extension other weak countries in the euro-zone) is convincingly eliminated as a threat –  global capital will continue to flow into the relative safe-haven of US dollar denominated assets like Treasury debt obligations and mortgage-backed securities – a condition that will tend to be very supportive of the near-term prospects of steady to perhaps fractionally lower mortgage interest rates.

Looking ahead to the next four trading days, Uncle Sam will be in the credit markets from Tuesday through Thursday looking to borrow $72 billion in the form of 3- and 10-year notes together with a 30-year bond offering.  If Euro-zone financial authorities have not cobbled out a financial rescue package for Greece by the time the 3-year Treasury notes go on the auction block at 1:00 p.m. ET tomorrow, demand for this three-part offering will likely be good – and the auctions will probably exert little, if any, noticeable influence on the trend trajectory of mortgage interest rates.  On the other hand, if a firm and viable agreement to save Greece from a major financial meltdown is reached prior to any one of the three debt sales  – the “flight-to-quality” of European capital into the relative safe-haven of US dollar denominated assets will likely begin to tapper off – resulting in lower prices for the offered debt instrument.  If this condition were to develop – it is almost sure to put upward pressure on mortgage interest rates before the week is over.

References

1. ^{^} Comment on Daily Mortgage Commentary, February 6, 2012 (realestatemarbles.com)
2. ^{^} Tweet (twitter.com)
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4. ^{^} Weekend Mortgage Commentary, February 3, 2012 (realestatemarbles.com)