This week's economic news was nearly all positive, and the stock market posted a strong rally. Unfortunately, what's good for stocks is generally unfavorable for mortgage rates. Progress on the Greek aid package and stronger than expected US manufacturing data, along with the end of the Fed's bond buying program, combined to push mortgage rates higher this week.
While the Fed made known months ago that its $600 billion quantitative easing program would end on June 30, investors have been uncertain what the impact would be. Since the program started, Fed purchases have accounted for roughly 85% of the total new Treasury issuance. The loss of this significant source of demand makes investors less willing to purchase Treasury securities, and mortgage-backed securities (MBS), at what have been historically low yields. Yields had to rise to attract investors.
Part of the improvement in mortgage rates in recent weeks was due to the economic troubles in Greece. Investors shifted to relatively safer investments such as US government guaranteed bonds, including MBS. This week, however, an aid package for Greece took a major step forward. Despite widespread strikes and demonstrations, the Greek government voted to adopt the new austerity measures required for Greece to receive the aid. With the successful vote, the short-term uncertainty decreased, and investors reversed the flight to safety, selling bonds and buying stocks.
The biggest economic event next week will be the important Employment report 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.
Contact Christian Johnson for more information on Mortgage News, 214.615.7272.