Great Risk to Floating

Greece is once again dominating the financial headlines today, as their banking system has been brought to a halt.  They just don’t have enough cash to support their obligations and they fear a massive run on the bank.  Although the banks are closed, they have allowed ATMs to remain open.  However, they have caped the amount of cash that can be taken out of each account at $60 euros per day.  This is equivalent to $60 US dollars, and clearly not enough for many families to operate their households.  This has sparked widespread fear that has caused significant losses to occur in stock markets around the world.  This is good news for the bond market, as investors will be seeking the more secure returns and liquidity of the US 10 Year Treasury Note.  This saga is far from over.  News of an emergency band aid for Greece could cause bonds to drop sharply.

This is a shortened week for the financial markets.The bond market will be closing at 12:00 pm MTS on Thursday and all day on Friday in observation of the 4^th of July holiday.  However, there will be no shortage of economic news or volatility this week.  On Wednesday, we will receive news from ADP regarding new job creations for the month of June.  This will be immediately followed on Friday by the Bureau of Labor Statistics (BLS) more recognized reading on job creations.  It is anticipated that there were around 250,000 new jobs.  However, given that this is the first official week of summer, and the first week many students begin their summer jobs, we feel the actual number could be significantly higher.  A higher report would be negative for mortgage interest rates heading forward.

Given the current state of volatility, there is great risk in floating.  If you choose to float, don’t take your eye off the market.  A surprise bail out in Greece could cause bonds to fall hard.