Mortgage bond prices remain sharply lower pushing rates higher following
a surprise euro zone deal in the early hours Friday morning.
Euro
leaders agreed to a plan to help lower borrowing costs which allows
rescue funds to be used for sovereign debt purchases without cutting
more spending. This was a sharp contrast to Germany's demands that
additional assistance must come with additional cuts. Market
participants were caught by surprise as no deal was expected from the
meeting. Unfortunately in the short term, this lowers borrowing costs
for troubled nations such as Italy and Spain. This also reverses some
of the flight to quality buying of US debt instruments, which is what we
are seeing this morning. However, this doesn't solve the debt problems
the euro zone faces and more volatility is expected. We call this a
BANDAID and only a short term move. Much bigger problems remain for
that region.
Personal income up 0.2%, spending unchanged, both
exactly as expected. Michigan consumer sentiment came in at 67.8
versus the expected 69 mark. The data is being heavily overshadowed by
the euro zone developments.
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