It's a small world after all.

The wild ride over the last few weeks continued again last week, as the US markets danced to the tune of the European debt and economic crisis. Here's what it means to home loan rates here in the US.

Even inflation hasn't stopped Bonds. Last week, consumer inflation and producer inflation came in above expectations. Remember inflation is the archenemy of Bonds and home loan rates, so hotter inflation would normally negatively impact Bonds and home loan rates. But even last week's inflation news didn't impact Bonds.
Seeing Bonds dismiss that inflation news indicates that the Bond market senses that the economy (which is already hardly growing) is in a very vulnerable position with things in Europe uncertain and gloomy at best. And when the situation deteriorates further, it may push many world economies into a recession.

It's all about Europe. US Bonds - including Mortgage Bonds - have been seen by the markets as a safe haven bid on existing and growing fears that Europe's debt crisis is coming to a head…and global growth, which is already anemic, is being threatened further. Not helping the situation was the news last week that there is no concrete solution to the European debt problems. Last week, French President Nicolas Sarkozy and German Chancellor Angela Merkel met. However, following the meeting, Sarkozy stated that "EuroBonds can be imagined one day, but at the END of the European integration process, not at the BEGINNING."

That was a pretty clear message to the financial markets that the creation of a EuroBond is not within the remote daydreams of Germany, which is the strongest nation in Europe and who will determine whether it gets created or not. So let's be clear, the German taxpayers want no part of a EuroBond, since it would use the surplus that Germany has worked hard to create to fund the poor habits and debt of weaker and less responsible member States.

The bottom line is that the fear and uncertainty right now is pretty overwhelming, which is supporting Bonds and home loan rates. But Bonds are at "nose bleed levels" and sentiment can change very quickly.