Wednesday, January 29, 2014 - Article by: Joe Shamie - First Choice Loan Services -
Wednesday - January 29, 2014, 12:15pm ET
Current Trend Direction: Sideways to Higher, just above resistance at the 200-day Moving Average
Float/Lock Bias: Floating into Fed statement
Current Price of FNMA 4.0% Bond: $104.50 +16bp
It's Fed Day! The last Fed statement in the reign of Ben Bernanke will be released this afternoon at 2:00pm ET. There is no chance for a change in the overnight short term Fed Funds Rate, but there could very well be a $10 billion reduction in the Fed's massive QEIII program from the current $75 billion to $65 billion. And there are some things to think about if the taper does happen. First, there is no news conference or Q/A afterwards, not by Bernanke and not by Yellen. So the only thing the markets will see is a taper and no added color behind the decision. What the markets may also see is a pattern, as an additional taper will be two in a row, which could lead the markets to think that the Fed will taper every month until it is over this Fall.
The market reaction, who knows what the kneejerk reaction will be. But, we may just see Bonds improve further overtime much like they have since the last taper. At the end of the day, the removal of stimulus is viewed as bad for Stocks. And when you consider the mantra dont fight the Fed. If the Fed is setting a pattern of stimulus removal, Stocks may continue to sell off, giving Bonds a boost.
While the Fed balance sheet recently crossed $4 trillion, the amount that's in Treasury securities is $2.23 trillion while the amount in mortgage backed securities is $1.53 trillion, for a total of $3.76 trillion, with the remaining $290 billion in odds and ends. The Fed balance sheet will grow by another $405 billion before tapering is finished. Remember, the balance sheet was just $800 billion before the Great Recession began.
There were no economic reports scheduled for release and today's scheduled 5-Year Note auction will be moved to tomorrow morning with the results at 11:30am ET. Tomorrow's 7-Year Note auction results will be released as scheduled at 1:00pm ET tomorrow.
The MBAs Market Composite Index, a measure of loan application volume, fell by a meager 0.2% in the latest week. The refinance index fell 2%, while the purchase index was up 2%. The refinance share of mortgage activity fell to 62% of total applications, down from 64% in the previous week, the lowest since September 2013. In addition, Completed foreclosures decline 14% from December 2012 to December 2013, reports CoreLogic.
Float and lets get ready for the fireworks this afternoon.
Joe Shamie NMLS # 241432
First Choice Loan Services NMLS # 210764
First Choice Bank NMLS# 177877
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