Mortgage rates fell appreciably on Monday, and eventually they made up all of the ground that was lost on Friday, as breakdown in Greece’s bailout talks sent investors to ultra-safe haven assets, such as government bonds. As demand for U.S bonds surged in the beginning of the week, treasury yields decreased, by the most since October 2014. The yield on the benchmark 10-year treasury note drifted lower by 16 basis points to 2.33% at the end of Monday’s trading session. The yield on the 30-year treasury note saw a significant decline as well, finishing the trading day at 3.09%, compared with Friday’s 3.25%.
Last week the U.S. bond market experienced a major weakness on increased optimism, that a bailout deal between Greece and its creditors will be reached. The bond market sold off several times last week, and as a consequence mortgage interest rates soared to the highest levels of the year on Friday. However, debt talks broke down during the weekend, which sent Greece on the brink of defaulting on a 1.6 billion euros debt payment on Tuesday, that the troubled country owes to the IMF. It appears that negotiations over a bailout extension have completely broken down between Greece and its creditors. As it’s increasingly likely that Greece will be unable to pay back its debt by midnight on Tuesday, the country may have to face a financial turmoil.
Markets reacted negatively on Monday, as fears that Greece could be heading toward a default and possibly leave the Eurozone sparked a global selloff in stocks. Investors and traders rushed into U.S. government bonds, which are considered as the safest fixed-income securities. Pricing on mortgage-backed securities (MBS), that normally influence lender pricing, increased on Monday. When pricing on MBS rises, mortgage rates improve and this is exactly what happened today. Lenders updated their rate sheets with lower mortgage rates and we are back to those levels last seen on Thursday.
While today’s downtick in mortgage rates is a welcome change in the current market envionrment which supports higher rates, the uncertainty over the Greek debt crisis and its effects on global markets will continue to impact markets in the foreseeable future. Therefore, it’s almost impossible to predict which direction mortgage rates will take this week or even tomorrow. We are certain that there is more volatility ahead, and mortgage rates could swing in any direction depending on the outcome of the upcoming economic headlines. With the recent trend of extreme market volatility in mind, which seems to be the new normal, today’s improvements in mortgage interest rates could quickly evaporate if the Greek debt drama suddenly takes a positive turn. Still, hope remains that U.S. mortgage rates will improve significantly during the week, however, if you are risk-averse it could be a wise decision to lock in today’s gains.
Monday’s economic calendar saw the release of fresh data on pending home sales, as well as the latest Dallas Fed Manufacturing Survey. The National Association of Realtors reported earlier today, that its Pending Home Sales Index rose 0.9% in May to a seasonally adjusted 112.6. This marks the highest level for his type of housing indicator since 2006. On the other hand, April’s pending home sales data was revised down to 111.6 from the initially reported 112.4. This is a strong report, which signals that the housing market continues gaining traction.
Another economic report came out today, in the form of the Dallas Fed Manufacturing Survey for June. The index showed a reading of -7 in June, improving from May’s -20.8 data. This is a better figure than the consensus expectation, which had projected a reading of -15.5. Given the ongoing debt crisis in Greece, today’s economic reports are considered as second-tier data at best, and we don’t anticipate that they would cause much net change in mortgage rates. Headlines from Greece remain the main market drivers this week, which have the potential to significantly impact global markets.
Freddie Mac’s latest Primary Mortgage Market Survey (PMMS) released last Thursday, showed that the national average interest rate on 30-year fixed mortgage loans edged up 2 basis points to 4.02% last week, from 4% in the prior week. This year’s lowest average rate on 30-year fixed mortgages was 3.59% at one point back in January. The highest average rate for this type of long-term conventional mortgage was 4.04% a few weeks back. The results of the mortgage-buyer’s latest weekly survey also revealed that the average rate on the 15-year fixed mortgage improved 2 basis points to 3.21% last week. A week earlier this type of mortgage loan averaged a rate of 3.23%.
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