Tuesday - February 11, 2014,11:10am ET

Current Trend Direction: Sideways to lower

Float/Lock Bias: Locking Short Term- Floating Loner Term

Current Price of FNMA 4.0% Bond: $104.88, -28bp

Mortgage Bonds are drifting lower during Fed Chair Janet Yellens first appearance on Capitol Hill as leader of the Fed.

Ms. Yellen will testify on the state of the U.S. economy and the Fed's monetary policy. Her prepared statement has already hit the wires. And it states that the FOMC is likely to reduce the pace of asset purchases in further measured steps if labor market conditions, inflation continue to improve. This means we should expect the $10B reduction each month unless labor market conditions worsen from these past two weak Job readings.

Ms. Yellen also went on to say that the 6.5% unemployment and 2% inflation are still thresholds, though the labor market recovery is far from complete. The Unemployment Rate has become a very poor metric of labor market health as it simply doesnt count people removed from the labor force, are discouraged and havent looked for work in four weeks or accepted part-time work but would rather be working full-time. The metric we have been focusing on for years is the Labor Force Participation Rate no shenanigans here you are either working or not. And that metric is at a 35-year low - not cool. This is exactly why the Fed says they will keep rates low well beyond such time that the unemployment rate drops beneath 6.5%. The way people are vanishing from the labor force each month, we are likely to see a 6.5% unemployment rate in the next couple of months. With GDP hovering at around 2%...does the economy feel good? Not really. So expect easy monetary policy for some time to come and that is something Ms. Yellen will hammer home this morning.

There are no economic reports due for release today.

The Bond market has to digest a total of $70B in Notes and Bonds that the Treasury will be auctioning this week beginning with today's $30B 3-Year offering. In addition, Mortgage Bonds continue to battle overhead resistance from the November highs along with rising Stock prices today.

Fannie Mae released its January 2014 National Housing Survey revealing that consumers are positive about access to mortgage credit, while their views toward the economy are improving. Here is the link to read the full report.

The Bond has not broken below its Rising Support Line, so longer-term, we cant give up on Bonds. Especially since the Bond has pretty much gone straight up since tapering was mentioned back in December. And if the Fed continues to taper, which we think is the play, maybe, just maybe, Bonds will revisit the highs of last year. Lock on short-term transactions, closing days and weeks. Consider floating longer-term to see if the Bond can bust a move above this nearby ceiling, as that would set up another leg lower in rates.

Joe Shamie NMLS # 241432

First Choice Loan Services NMLS # 210764

First Choice Bank NMLS# 177877

866-970-3400 x-5135

jshamie@fcbmtg.com