Economy Gaining SteamJul 5 2011
As we head back after Independence Day and the long weekend, many were grateful for the day off with all of the news and movement in the markets from last week. Although we head into a short work week, there is plenty to look toward in terms of mortgage rate drivers.
The economy gained some steam last week leading to some impressive stock market gains. Reports late in the week showed manufacturing expanding more than expected, along with Chicago-area economic data also unexpectedly improving. Add this impact to Greece approving austerity measures needed to avoid defaulting on their debt, easing economic tension slightly in Europe. With fewer investors as skittish about the global economy, demand for U.S. Treasuries declined last week, which pushed yields and mortgage rates higher. Rates have started the week lower, however, as rumors circulate that China’s debt may be understated, and talks of rating agency downgrades for Greece persist. So we’ve already seen some momentum back toward the relative safety of U.S. Treasuries, which has helped maintain lower rates similar to the lows we saw from May.
A good piece of news for mortgage rates last week was the investor demand remaining after the Federal Reserve’s end of “QE2” (the second Quantitative Easing program of investing in U.S. Treasuries and mortgage-backed securities in order to help foster lower borrowing costs). Although rates modestly rose last week as the program drew to a close, most view this a result of positive economic reports, with only a small gap left behind by the Fed’s exit.
As attention turns away from Greece and economic trouble abroad, eyes should start to focus more on the U.S. debt ceiling as July 22nd is the targeted cutoff to come to an agreement in order to have a solution completed by August 2nd deadline. To the extent that the government drags its feet here, rating agencies might be prompted to start threatening downgrade action, which could lead to less investor demand for Treasuries, which in turn would force mortgage rates higher. Keep an eye on developments here in the days ahead.
This week, Friday’s Payroll report for June will highlight U.S. economic reports with an expectation that 100k jobs will have been added (nearly double what was reported for May).