European officials are scheduled to meet this weekend and again next week, and they hope to release a plan for a comprehensive aid package by Wednesday. Officials are divided on what steps to take to help ease debt problems in troubled nations. Given the conflicting goals of the parties involved, the optimal solution is not clear. Whatever the outcome, it will likely have a significant impact on mortgage rates next week. Until the results of the summit are known, MBS prices may be subject to a high level of volatility, as news and speculation comes out. A decisive plan to prevent the spread of debt problems could cause investors to reverse the flight to safety trade, leading to higher mortgage rates. On the other hand, a plan which disappoints investors could produce an increased flight to safer assets, causing mortgage rates to move lower. In any case, be prepared for higher than normal volatility over the next several days.
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