ortgage pricing retreated yesterday on several positive economic reports, and on Fed Chariman Bernanke’s second day of testimony before Congress. On Wednesday, the Chairman had suggested that the Fed would be willing to consider additional steps to support economic growth and, especially, job gains. In Thursday’s testimony, he reiterated that willingness, but he also made it very clear that he doesn’t perceive that the current situation justifies that step at this time. Economic reports added to this, showing an increase in core inflation and retail sales and a modest decline in unemployment claims.
The smorgasbord of European debt problems served up another heaping plateful yesterday, as debt rating agency Moody’s downgraded Irish bonds to junk status, making it the 3rd country to see its obligations compared to bathroom tissue. Combine that with sentiment from several members of the Federal Reserve Open Markets Committee that they would be willing to entertain the possibility of more stimulus if economic weakness continues, and the environment was right for mortgage pricing to improve significantly yesterday. It didn’t, but only because it had already improved so much in prior days. Still, this does shift the bias towards possible further improvement.
Yesterday’s strong start accelerated through the day the day as traders took concerns about the expansion of Europe’s debt worries to Italy very seriously. The 10-year Treasury note, which had ballooned to over 3.10% as problems in Greece appeared to have subsided, dipped below 3.0% again on concerns that the situation may actually worsen. Now worries about Italian and Spanish debt, previously believed the most secure of that group of 5 weak European economies, are spreading and that pushed a lot of money out of stocks and into the safety of US Treasuries yesterday.