Mortgage rates headed slightly lower on Monday, as the outcome of Sunday’s Greek referendum has sent stocks lower and bonds higher in the beginning of the week. U.S. government bonds strengthened on Monday, as growing concerns over a possible Greek exit from the Eurozone drove investors and traders to ultra-safe fixed-income securities, such as U.S. treasury bonds. As we reported over the weekend, Greece has rejected the austerity terms proposed by European creditors in a referendum held on Sunday, that pushed the country to the brink of a deep financial crisis and a possible exit from the Eurozone. The U.S. bond market rallied folllowing the Greek anti-austerity vote and mortgage-backed securities (MBS), which lenders use to set rate sheet levels, improved as well. Consequently, several mortgage lenders repriced their rate sheets for the better during the afternoon, while those who haven’t passed along the gains yet are expected to do so on Tuesday morning.
The yield on the benchmark 10-year Treasury note dropped by 10 basis points at the end of Monday’s trading session, closing at 2.30%, the lowest level since June 19. The 30-year treasury yield dipped notably as well, finishing the trading day at 3.08%, compared with Thursday’s 3.19%.
Due to the ongoing Greek sovereign debt drama – with no immediate resolution in sight, although, the parties are gearing up for new talks over a fresh bailout deal on Tuesday – the next couple of days are expected to be volatile with plenty of price swings. The headlines over Greece’s debt crisis continue to impact market movements significantly and these market movements influence mortgage rates.
With the recent trend of extreme market volatility in mind, it wouldn’t be surprising to see today’s gains in mortgage rates evaporated in a blink of an eye, provided that Greece reaches a bailout deal with its creditors in the coming days. However, in case the debt talks completely fall apart and Greece leaves the Eurozone, it could trigger an even bigger financial turmoil overseas. Such an event would most likely cause U.S. mortgage rates to drop in the short-term.
Two pieces of domestic economic data got released today, and they show a mixed picture of the U.S. economy. The ISM Non-Manufacturing Purchasing Managers Index rose to 56.0 in June, up 0.3% from the May reading of 55.7%, marking the 65th consecutive month of growth in the non-manufacturing sector. The latest figure is right in line with economists’ expectation.
On Monday, financial firm Markit released its U.S. Services PMI for June, which showed that the expansion of the services sector eased last month due to a slowdown in employment and business growth. The final reading of June came in at 54.8, down from 56.2 in May. Overall, the index still shows expansion in the sector, as any reading above 50 signals expansion in economic activity, but the pace of growth is slower than earlier in the second quarter.
The national average rate on 30-year fixed-rate mortgages hit the highest level of the year in Freddie Mac’s latest Primary Mortgage Market Survey (PMMS) released last Thursday. According to the federal agency’s findings, the 30-year FRM averaged a rate of 4.08% last week, which marks a 6 basis points uptick compared to data from the prior week. The interest rate on the 15-year fixed-rate mortgage soared as well, averaging 3.24% last week. However, we should note, that the survey results doesn’t take into account the bond market rally, which came on the heels of a weaker-than-expected Non-Farm Payrolls data released Thursday.
Now, coming back to today’s mortgage rates, as we repeated a number of times before, if you can’t tolerate risk and believe there’s simply too much risk to be gambling on interest rates, you better go ahead and lock a rate today. We believe locking makes the most sense and it’s the safest option these days, while floating remains quite risky. The current market environment is extremely volatile and in such an environment interest rates could swing in any direction. On the other hand, it’s unlikely that we see an immediate resolution to the Greek debt crisis tomorrow, which means there’s always a chance that mortgage rates will improve further. So if you are able to handle more risk for a big reward, floating may pay off eventually.
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