Mortgage interest rates improved slightly on the week on continued concerns that Greece will default on its sovereign debt. S&P downgraded Greece’s debt to junk which led many investors to move money into the Treasury markets, also helping mortgages. Also of note, the Treasury Department auctioned off $118 billion in 2 year, 5 year, and 7 year notes this past week. Demand was mixed. Economic data was generally in line with expectations or better than expected. Economic data better than expected included April Consumer Confidence, the Chicago Purchasing Managers Index, and the University of Michigan Consumer Sentiment Index. Economic data in line with expectations included weekly jobless claims, continuing claims, and the first look at Q1 GDP, which was up 3.2%. Also, the Fed left the Fed Funds rate unchanged at the conclusion of its FOMC meeting.
Several unusual forces are pushing and tugging at markets, making it hard to isolate actual changes in trend. The all-defining 10-year T-note continues to fall in yield, a four-week straight-line decline from 3.99% to 3.66% this morning. 3.60% is the next key level, going all the way back to December. Maybe this drop reflects recovery skepticism among global bond investors, or maybe it’s a temporary flight from woes in Europe. Mortgages are stuck at 5.125%, the spread to the 10-year at 1.45% the widest in six months — possibly widening because flights to quality are usually limited to Treasurys, or possibly because the Fed is no longer buying MBS and mortgages are gradually returning to a normal, 1.75% spread. There were no good clues in the economic data, neither signs of stall nor acceleration. New claims for unemployment insurance in April have been a hair higher than in March, near 450,000 weekly. New mortgage applications are running 31% above February, confirming a remarkable spike in home sales, but we won’t know until mid-May how much is due to the expiring tax credit (bet on “a lot”). 1st Quarter GDP pulled up 3.2% in today’s release, the third-straight quarterly gain, but the stock market is down on the news. Consumer spending was a healthy component, which it sure as hell ought to be, given the Treasury hosing $150 billion that it doesn’t have into American pockets each month.