Wednesday - February 19, 2014, 10:10 am ET

Current Trend Direction: Sideways to Higher, just above resistance at the 200-day Moving Average

Float/Lock Bias: Carefully Floating with prices looking to move higherCurrent Price of FNMA 4.0% Bond: $104.56 +22bp

Mortgage Bonds found solace at the 200-day Moving Average and are making a nice gap open off that support level. Bad news is good news for Bonds and todays string of tepid economic readings is giving Bond reason to rise so far today.

The January Producer Price Index (PPI) was inline at 0.2%, Core at 0.2%, above the 0.1% expected. The headline PPI year-over-year rose to 1.2%, up from the December reading of 1.1%, Core at 1.3%, which was up from 1.2% in December. Both a bit hotter than expected. The PPI has been revamped by the government. The PPI had tracked wholesale prices of goods. It will now track services, such as banking, retailing and health care along with construction. The index will also cover goods and services that are exported or bought by the government when previously only goods bought by consumers and businesses were included. The new formula to capture services like healthcare may reveal some inflationary pressures but overall and for the moment, inflation remains virtually non-existent.

Over in housing, Housing Starts declined 16% from December to January to 880K units annualized versus the 963K expected. December revised up to 1.05M from 999K. Building Permits fell 5% to 937K versus the 980K expected, December was revised to 1.048M from 986K. The lower numbers were blamed on the harsh weather last month, which makes a lot of sense, but weather has become the culprit for all bad reports and that doesnt make sense.

The Mortgage Bankers Association reported today that its Market Composite Index, a measure of total loan application volume fell by 4.1% in the latest week. The refinance index fell by 2.7%, the purchase dropped 6.3% to hit its lowest level since September of 2011.

This afternoon at 2:00pm ET, the Minutes from the January FOMC meeting will be released. The Minutes will most likely give us more insight on the Fed's tapering of its massive QE III program. We think the path is set for a continued gradual reduction in taperingand if you look at how Bonds have performed since the tapering began bring it on.

Technically, as mentioned, the 4% coupon is resting above the three layers of support found at the 25/100/200-day Moving Averages. With Stock prices under pressure so far today and the Minutes on the way, we will continue to carefully float as long as the Bond can remain near or above support.

Joe Shamie NMLS # 241432

First Choice Loan Services NMLS # 210764

First Choice Bank NMLS# 177877

866-970-3400 x-5135

jshamie@fcbmtg.com