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Fed
Statement Little Changed
With a Fed meeting, Treasury
auctions, and major economic data on this week's schedule, investors were
watching closely for unfavorable news.
In the end, there were no major surprises. Little changed in the Fed
Statement, auction demand was at
average levels, and the economic data was generally close to expectations.
The biggest influence on mortgage markets turned out to be turmoil in
Greece, which caused investors to seek the relative safety of US bonds, and
mortgage rates ended the week a little lower.
The economic troubles of Greece
have been in the news frequently in recent weeks. Its ability to recover
from significant budget deficits and to pay its debts has been questioned.
The European Union (EU) and the International Monetary Fund (IMF) are
working on a bailout package for Greece to allow enough time for the
country to stabilize. Despite the coming assistance, though, the debt of
Greece was further downgraded on Tuesday. In addition, investors grew more
concerned that other smaller European countries will reveal similar
problems. As a result, investors shifted funds to safer investments,
including US Treasuries and mortgage-backed securities (MBS).
Prior to Wednesday's Fed meeting,
it had been reported that support was growing among Fed officials to begin
sales of mortgage-backed securities (MBS) from the Fed's portfolio. The Fed
statement made no reference to MBS sales, however. As expected, the Fed
made no change in the fed funds rate. The statement described the economy
in slightly more positive terms. Otherwise, it was very similar to the
prior statement. The Fed retained the "extended period" language
regarding the fed funds rate. In short, nothing in the statement caused
investors to alter their outlook for Fed policy.
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