Well normally I would be telling everyone about this big day ahead of us this Friday with the release of Mayâ€™s NFP report. However, with the crisis in Europe, I am beginning to wonder if it really matters anymore. We are experiencing a huge flight-to-quality trade as investors are flocking to the safety of US treasuries and the German Bond markets. How are these numbers to show you that the world is very concerned about the spreading debt crisis in the EU zoneâ€¦a 1.65% US 10yr which is an all-time low and a 1.28% 10yr German 10yr Bund.
I know this story is getting old but it is so incredibly broad and complex not to mention purely horrific so it will consume the financial markets for the near to intermediate future. So while I always respect the importance of domestic economic numbers, especially the NFP report, I must say that in short time the focus will be right back on the EU crisis.
Where do we start with highlighting the problems? Greece?? Yesterdayâ€™s news that is far from resolved. Italy?? They had an extremely bad bond auction yesterday. Spain?? In the midst of a huge banking crisis that will require the help of the European Central Bank (ECB). Ireland?? Their banks also need more capital to survive. You can pretty much throw a dart at the European map and hit a country that is on the brink of major financial collapse if they do not get some help. Where does the ECB draw the line? I would not want to be the one making these decisions and I think very few would like that gig.
In the meantime, we in the US are totally at their mercy. US stocks are getting spanked again after a few days of veiled optimism. Commodities are down. All this is pointing to a major â€œrisk-offâ€ trade that everyone involved in the financial markets are participating in. So we as originators will benefit with lowers bond yields and lower mortgage rates. Understand, however, that it is coming at the expense of a global economic crisis that will lead to a global economic slowdown. It has the makings of being a deep slowdown that may take years to reverse.
Like I say a lotâ€¦this is historic textbook stuff that will be reviewed and analyzed by some very smart folks for many years to come.