06 Jul Safe play is to lock
Yesterday, Greece voted against Europe’s latest bailout offer. This was a huge victory for Prime Minister Alexis Tsipras who has been pushing against austerity measures for the Greek citizens. He is hoping that this will force Europe to provide Greece with more money without the significant cuts to spending and increase to taxes on all citizens. Overall, he is also expecting this to force Europe to cancel some of Greece’s enormous debt. Although Alex Tsipras had over 60% support for saying “No,” this does raise the prospect of economic disaster for Greece and is putting its future in the euro at risk. The current state of Greece’s economy is deteriorating with each passing hour. This is a fluid situation and is adding a great deal of volatility to the world financial markets.
The news out of Europe has helped improve mortgage bonds again this morning. Bonds broke out of the downward channel that has driven rates higher the past couple months. If bonds can remain above the channel, this will be a significant change for near term future of mortgage rates. Rather than anticipating rates to move higher as the week’s pass, this could mean that rates will hold steady and possibly improve. Because it is still early in the trading day, it is difficult to say if bonds will be able to hang on to their gains. Anytime we see a large “gap up” opening, it is common for bonds to fall back down and “close the gap.” This could very well happen today, which would put bonds back in the downward channel. We will have to watch and see what happens.
Although bonds are currently above the trading channel, it is too early to say for sure that they can maintain their position. Therefore, the safe play will be to lock in and protect the gains bonds have made the past couple of days.