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Dean Slatev

Frontier State Bank Mortgage Lending

Office: 405-209-5217

Email: dslatev@frontier-ok.com

website: www.deanslatev.com

Getting a Home Loan Couldn't Be Simpler

Thursday, February 09, 2012

Prior to 8:00 this morning treasuries were generally unchanged; at 8:00 news wires lit up reporting that Greece has passed the austerity plans necessary to get the funds to avoid default on March 20^th. The reaction sent the 10 yr note yield to 2.04%, however the MBS markets held firm at unchanged. While it appears that a deal within Greece on cutting spending has been accomplished, after all the false starts over the last six months markets are waiting for confirmation from the troika (ECB, IMF, and EU). After 45 minutes the ECB said it had gotten the word that a deal has been reached. European stocks rose for the first time in four days, U.S. index futures gained and the euro strengthened; by 9:00 the 10 yr note yield increased to 2.05% and a little pressure on prices on MBSs. Greece faces a 14.5 billion-euro bond payment on March 20 and is struggling to obtain financing to avert a collapse of the economy that could spark a new round of contagion in the euro area.

The ECB left interest rates unchanged at its policy meeting today; ECB chief Mario Draghi said the economic outlook faces “downside risks.” “The economic outlook remains subject to high uncertainty and downside risks,” Draghi said at a press conference in Frankfurt today. Last month, he said the outlook was subject to “substantial” downside risks. The euro currency rallied on the Greek news and no change in interest rates but it was short lived and the currency backed off its strongest levels against the dollar, still however a little better at 9:00.

Here in the US weekly jobless claims this morning were much better than what was expected, claims were thought to have increased a little last week; claims declined 15K to a new recent low of 358K new filings. Continuing claims at 3.51 mil were up from 3.45 mil, continuing claims have been about this level for weeks.

The 10 yr note yield jumped to 2.06% on the Greek news then found support for the moment at chart support 2.05%. The equity market opened a little stronger at 9:30 on the news in Greece and the unexpected decline in weekly jobless claims. The DJIA opened +15, the 10 yr 2.04% and MBS prices down just slightly (-3/32 (.09 bp) and unchanged from 9:30 yesterday.

At 10:00 Dec wholesale inventories, expected +0.4%; was reported up 1.0%; the higher inventory levels will likely increase Q4 GDP a little when the preliminary report is out on the 29^th.

At 1:00 the final auction this week; $16B of 30 yr bonds, yesterday’s 10 yr note met with good demand.

The market reactions on the Greek news has been rather subdued; the equity market better but not much and the interest rate markets moved to their support level (2.05% on the 10 yr) and so far have held. The MBS market slightly lower in price. Traders and investors are taking the Greek news with a little grain of salt given the number of times in the past that failed. Nevertheless there will be a deal for Greece to get the funds necessary to avoid default. For the last four sessions the 10 yr note yield has been increasing, traders were exiting those safety trades that pushed the 10 yield to 1.80%. Mortgage markets compared to treasuries have been stable with not much change while the 10 yr yield increased 25 bp from its low on Feb 1^st.