Debt Debate Continues as Obama, Boehner Address Nation

Debt Debate Continues as Obama, Boehner Address Nation – 7/26/11

The risk of a US Government default increased yesterday, as weekend talks between the President and Congress failed to produce any tangible results. This finally translated into changes in mortgage and Treasury pricing, with the 10-year note increasing .04% in yield and mortgages roughly 30 basis points less valuable. With little other news to move them markets started down, an ended there.

This morning we have a little news already, in the form of the Case-Schiller / S&P home-price index, which showed that prices improved slightly in May, compared to April. While this is a slight positive for markets, the Case-Schiller index is widely ignored by the housing industry due to the trailing nature of its information. Later this morning, we’ll see the more relevant New Home Sales figure, which is expected to show annualized sales of about 321,000. During the boom years, over a million new homes were put into service each year. One encouraging data point for new home sales lately has been the dearth of inventory, with only 166,000 new homes on the market as of the most recent survey.

Also at 10:00, we’ll see the consumer confidence survey from the Conference Board, which is expected to have declined slightly as consumers worry more about the impasse in Washington. Elsewhere, yesterday, the Moody’s ratings agency raised its expectation for a Greek default to 100%, which helped to prevent more money from flowing out of the US. I don’t know how it could become more apparent that the European Currency Union isn’t any better off than the US, albeit for somewhat different reasons, but with this news yesterday it appears that did occur.

Trading today has started with a slight improvement in mortgage pricing. After yesterday’s speeches from the President and Majority Leader Boehner, it doesn’t appear the two sides are any closer to agreement. Both essentially lambasted each other for failure to listen to the American people and compromise on the debt issue. Ultimately, it appears that when something is passed, it will not meet the aspirations that either side had, but the president will be forced to sign it, or own the US default. This ultimately depends on the House and Senate agreeing on some package, a challenging feat considering that different parties control each body. There is still significant risk this debate could get worse before a solution materializes. This thing is an out-of-control train. It’s time to get out of its way.

Rate lock recommendations, by time to loan funding:

<15 days: lock

15-30 days: lock

30+ days: consider locking

Related Posts

• Debt Ceiling to Dominate Week, But Don’t Forget GDP
• Greek Bailout Passed; Understanding “Buy the rumor, Sell the news” and “Flight to Safety”
• Unemployment Claims Rise Modestly, Manufacturing Data Eyed
• Obama Statement Gives Markets Confidence Debt Limit Deal Is In The Works
• Home Builders Spring Into Action In June