Weaker than expected US economic data and continuing concerns about Europe were positive for mortgage rates, which declined to record low levels this week.

Nearly all of the economic data released this week, including GDP, ISM Manufacturing, Consumer Confidence, and Pending Home Sales, fell short of expectations. Most significantly, for the third consecutive month, the important Employment report disappointed investors. Against a consensus forecast of 150K, the economy added just 69K jobs in May, and the figures for prior months were revised lower by 49K. The Unemployment Rate unexpectedly increased to 8.2%, from 8.1% in April. In short, the data was weak in nearly every area. As usual, bad news for the economy was positive for mortgage rates.

Growing uncertainty in Europe increased investor demand for safer assets, including US mortgage-backed securities (MBS). The big question for Greece is still whether it will exit the euro. In Spain, the banking sector is on shaky ground, and ECB officials are opposed to the use of ECB facilities for a bailout. European Union (EU) officials instead are considering a “banking union” to share the burden of bank failures in the EU. Reflecting the uncertainty, borrowing costs in Italy moved significantly higher at its most recent bond auction. Until investors see definite signs of progress in easing Europe’s troubles, investors are likely to favor relatively less risky assets.

Next week, Factory Orders will be released on Monday. ISM Services will come out on Tuesday. Productivity is scheduled for Wednesday. The Trade Balance will be released on Friday. In addition, there will be many Fed speakers during the week. Events in Europe will continue to influence US mortgage rates as well.

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