Mortgage Time

Mortgage Market News for the week ending May 11, 2012

European Elections Favor Challengers

This week saw increasing uncertainty in Europe, leading to lower stock prices and strong demand for the US Treasury auctions. Ordinarily, these factors would result in improved mortgage rates, but mortgage rates ended the week nearly unchanged from last week.

In closely watched elections on Sunday, voters in France and Greece strongly favored the candidates who opposed austerity measures. The results confirmed that political opposition to austerity is strong in many countries, and there is growing disagreement about the best approach to solve Europe's problems. In Greece, the government struggled to reach a consensus, leaving in question the future of required austerity measures. EU officials threatened to withhold their next aid payment, and the possibility that Greece could leave the European Union has increased.

The high level of uncertainty in Europe caused investors to worry about the pace of global economic growth. During the week, investors moved away from risky assets in general, sending US stock markets lower. US bond markets are normally a beneficiary of such a flight to safety, but neither Treasuries nor mortgage-backed securities (MBS) posted gains this week. With rates near record lows, investors appeared to be reluctant to purchase bonds at lower yields.

Also Notable:

• April Core PPI inflation was 2.7% higher than one year ago
• Consumer Sentiment rose to the highest level since January 2008
• The March Trade Deficit reached a record high, mostly due to high oil prices
• The Bank of England did not extend its quantitative easing program