Rates are higher today on both positive EU community news, and the added weight of $42 billion of US bond sales today. As the Greece crisis stretches out, the impact on other EU nations is beginning to be felt, and Germany’s Angela Merkel and others are understanding the need for a quick Greece resolution. They’ve pledged to have this done in three days — and the market is responding to this expectation. This quick resolution is in part due to the weakening of the financial picture for Spain, Ireland, Portugal and Italy, as this things goes further. As I said several days ago, the Euro either stands or falls on this current crisis.

Nonetheless, there are several within Germany’s political circle who are not highly in favor of German assistance — at least not without additional assurances from Greece that they have a 3-yr plan in place to reduce debt — and to repay Germany. These are all sovereign nations yet; and the prudent need to know that their own substance is protected.

So, with this “promise” the flight to security is diminished, and money is flowing out of bonds. Additionally, today’s $42 billion sale — for a weekly total of $129 billion — is being met with weaker demand. (And again, last year, we were selling on the order of $9 billion per week. So the numbers of these sales, in my opinion, are highly inflationary.)

On Federal Reserve news, although they today restated its intention to keep the benchmark interest rate near zero for an “extended period” and that the labor market is “beginning to improve”, there is still expectation within the bond market that the economy is improving (expecting some action on the Fed’s part soon) and is building in higher interest rates. The Libor today crested 1% today (1.015%) — the highest level since December 16. (Libor, by the way, is the rate-setter for Home Equities. If your clients are in HELOC, this is the time to finance them out of it.)

If the Greece situation is settled in the next day or so, look for upward pressure in interest rates.

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