There are two significant and competing elements in today’s rates, both working against each other. Which one ultimately predominates and drives rates up or down is yet to be seen. You decide. Here’s the facts:

The economic issues surrounding Greece have deteriorated overnight. Traders are increasingly concerned that the rescue plan may unravel. This causes “flight to debt of stability” — US, in part; and the extra demand works to drive up the purchase price of Treasuries (i.e., lower interest rates). Greece’s 10 yr interest rate, as of this writing, is 7.15%.

On the other hand, we are in the middle of an extraordinarily high $82 billion debt sale, the magnitude of which drags down demand. (Lower bond prices, higher interest rates.) And it absolutely is this vehicle that equates to new and refi home mortgage rates. Certain Asian traders, on the expectation of our rapidly increasing debt,  have opined that “Supply will start to overtake demand in the second half of 2010, and push yields higher” And that “this is the time to sell.” (Again, expecting bond prices down; interest rates up.)

On Fed news, yesterday the talks reflected that they expect to keep the main rate low for an “extended period.” Some members are warning of increasing the risks of increasing borrowing costs too soon. The futures market on Fed rates shows a 59% chance that Fed benchmark rates will rise by 25 basis points by November — pretty far off; and down a percentage point from yesterday.

On the speaking circuit yesterday, Treasury Secretary Timothy Geithner attributed that some of the recent increase in Treasury yields is due  to “fundamental” improvements in the economic outlook. –Government speak for “the economic situation is getting rosy.” In my viewpoint, though, the reasoning is a bit circular: he’s quoting from governmental economic reports that are created — by the government. Not that there would be any politically-motivated influence there.

If things do truly begin to heat up, this will cause attention to shift to inflation concerns, with a likelihood of the Fed raising rates. (Inflation is a funny animal, and perhaps one day soon, I’ll write a post as to the understanding of inflation.)

So, in the sum, Greece’s challenges are weighing on the market, as are our own large quantity of debt sales. Neither of these things are good things. The world markets are factoring in, without EU and IMF intervention “many times bigger than the ($33 billion) people have in mind”, Greece may default on its loans as early as this year –And if we don’t stop our own spending spree, we may be looking at the future of America. You may remember from yesterday’s post that we’re already the fourth most risky nation to invest in, in a comparison of ten mostly European nations — including Greece.

If you’re in a variable rate mortgage, fix it now.

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