Wednesday, March 19, 2014 - Article by: Joe Shamie - First Choice Loan Services -
Wednesday - March 19, 2014, 9:25am ET
Current Trend Direction: Sideways
Advise Your Clients: Start day carefully floating
Current Price of FNMA 4.0% Bond:$104.31, -6bp
The big news event of the week will take place this afternoon around 2:00pm ET when the Federal Reserve releases its monetary policy statement. We expect that the members will agree to continue to taper its massive Bond buying program, most likely a total of $10B, split between Treasury and Mortgage Backed Securities.
That will bring the total amount of Bond buying each month to $55B, down from the original $85B per month. There is some question as to what track the Fed will take as far as the short term Fed Funds Rate (FFR), which is currently at 0.25%. The Fed had said that once the Unemployment Rate gets down to 6.5%, the FFR would begin to increase. However, the lower Unemployment Rate could be due in part to discouraged job seekers giving up searching for work. Therefore, the Fed may feel that the economy isn't strong enough to begin raising short term rates. There will be no change to the FFR, but we will likely see some language change to potentially move away from the 6.5% unemployment target.
With unemployment at 6.7%, close to the 6.5% level at which the Fed has said it would raise short-term rates, the Fed must change its short-term interest rate guidance. The Fed is wrestling with how much slack exists in labor markets and if the swollen ranks of the long-term unemployed will keep wages down or if wages will soon rise because the number of short-term unemployed is back to normal.There are no economic reports due for release today.
Technically, the 4% coupon continues to trade above the "Triple Lindy" of support provided by the 50, 100 and 200-day Moving Averages. The markets are anticipating a taper of $10B, so it will not be a big surprise if that is announced this afternoon.
We will continue to float, as long as the market allows and as long as the 4% can remain above support. If those levels are breached, we will quickly switch to a locking bias, so be on guard.
Joe Shamie NMLS # 241432
First Choice Loan Services NMLS # 210764
First Choice Bank NMLS# 177877
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