Mortgage rates ended the week on a high note, as they moved lower to levels haven’t seen since the beginning of June. U.S. government bonds posted their biggest one-week price gain in three months, as fears over Greece’s debt crisis continued to impact markets. On Friday, pricing on mortgage-backed securities (MBS), which most directly influence interest rates, increased as well.
Greece is expected to table a new proposal to its creditors on Sunday, as a last-ditch attempt to break the deadlock and reach a deal to prevent defaulting on its IMF loan. Without a deal Greece would be forced to default on its debt payment and it could possibly lead to an exit from the Eurozone. In case Greece is unable to come to an agreement with its creditors until the end of the month, it could shake up financial markets. With regards to Friday’s trading session, after reaching an eight-month high last week in the form of 2.5%, the yield on the benchmark 10-year treasury note finished at 2.2596% on Friday. During the week the yield declined by 0.12% on the aforementioned 10-year treasury note, which marks the biggest weekly decrease since March.
The Federal Reserve decided not to lift interest rates in June, but comments from the U.S. central bank suggests that a raise in short-term rates could be on the cards this year. Fed Chair Janet Yellen underscored on Wednesday, that although, the U.S. economy has made some progress in the second quarter and the Fed remains on track to raise rates this year, an interest rate hike too soon could pose a threat to the current pace of economic recovery. While Fed members expect a rate hike to take place this year, the U.S central bank’s decision on the timing of the long-awaited rate liftoff is dependent on the incoming economic data. Currently, the consensus expectation is that the Fed will hike rates in September.
On Thursday, Goldman Sachs Group chimed in with its own projection, saying that a rate hike won’t occur until the Fed’s final FOMC meeting of 2015. The investment bank revised its earlier projection, that said a rate hike could come as early as September, and now believes that a tightening is more likely to take place in December.
In other news, national mortgage rates improved slightly this week, according to Freddie Mac’s weekly Primary Mortgage Market Survey (PMMS) released Thursday. The federal agency’s survey showed, that the average interest rate on the 30-year fixed mortgage saw a decline to 4.00% this week, which translates to a 4 percent slide compared with data from a week earlier. The average fixed rate on shorter, 15-year loans eased as well, finishing the week at 3.25% compared to 3.23% last week.
The upcoming week’s economic calendar includes a bunch of important housing market, GDP, manufacturing and consumer sentiment data. However, the focus will be most likely centered on Greece’s debt talks that enter its final stretch. As far as U.S. mortgage rates are concerned, a quick resolution to Greece’s debt situation could potentially put an upward pressure on interest rates. On the other hand, if the country defaults on its debts, it could eventually help U.S. mortgage rates to head lower.
On Monday, the National Association of Realtors will publish the existing home sales data for May. Existing home sales is an important economic indicator, as it reflects not only the current housing market demand, but also the economic momentum. The consensus expectation is that existing home sales rose 4.4% to 5.26 million units in May, following a 3.3% decline in April. Another housing industry data, the new home sales report for May is scheduled for a release on Tuesday. Economists are projecting a solid increase (1.1%) for the upcoming new home sales data.
May’s durable goods orders report will also see the light of day on Tuesday. According to the latest forecasts, total durable goods orders likely fell 0.2% last month, while nondefense capital goods orders, that excludes aircraft orders, likely ticked up 0.6%.
Markit is going to release its latest U.S. Manufacturing PMI on Tuesday, which is expected to show an improvement to 54.1 in June compared to the previous 54.0 in May.
We will also get some new reports from the manufacturing sector during the week. The Richmond Fed Index is set to be released on Tuesday and the latest estimations point to an increase to 4 in June from 1 in May. On the other hand, the Kansas City Manufacturing Index for June will come out on Thursday. For this regional manufacturing activity index economists are projecting an improvement to -10 in June, compared to -13 in May.
The upcoming Personal Income and Outlays report is scheduled for a release on Thursday. Personal nominal income likely climbed 0.5% last month, while consumer spending likely advanced 0.6%, according to the most up-to-date estimations.
The general consensus that the the headline PCE price index, which is a measure of inflation, likely edged up 0.4% in May, while core PCE inflation, which excludes volatile food and energy categories, likely rose 0.1% last month.
The third and final estimate for Q1 GDP will come out on Wednesday, and analysts expect an upward revision to -0.1% from -0.7%.
The University of Michigan Consumer Sentiment Index for June is going to be published on Friday. The consensus expectation is for a reading of 94.6, a rebound from 90.7 in May.
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