Weekly Update: 30yr Fixed - 3.875%; 15yr Fixed - 3.25%Posted by Emily Ray-Porter on Monday, May 7th, 2012 at 7:17am.
Increased concerns about the troubles in Europe had the biggest influence on mortgage rates this week. As usual, investors reacted by shifting to relatively safer assets including US mortgage-backed securities (MBS), and mortgage rates again ended the week a little lower.
Spain has been the focus in Europe recently, but issues emerged this week from more surprising sources. The President of France is behind after the first round of voting in his bid to be reelected, and his opponent is not a supporter of austerity measures. In addition, budget talks broke down in the Netherlands after seven weeks, without an agreement on cutting spending. With weak economic data coming from nearly every euro zone country except for Germany, many people are questioning whether austerity plans are the correct remedy for the troubles in the region. Investors are reluctant to invest in the region amid the uncertainty, raising bond yields (and government borrowing costs).
In stark contrast to the Fed statement released in March, Wednesday's Fed statement caused almost no reaction. The content was little changed from the prior statement. In recent weeks, Fed officials have repeatedly expressed that current monetary policy is appropriate for the existing economic conditions. The statement and press conference provided no reason to change the consensus view that there is a high hurdle for Fed officials to either provide additional easing or to begin tightening in the near future. Unexpected events such as sustained weakness in the labor market or severe troubles in Europe might prompt the Fed to ease further, while a surge in inflation could lead to early tightening.
The biggest economic report next week will be the important Employment data on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month.