Thursday - March 20, 2014, 9:45 am ET

Current Trend Direction: Lower

Float/Lock Bias: Start day carefully floating

Current Price of FNMA 4.0% Bond: $103.59, -6bp

Yesterday the Fed Statement revealed that tapering will continue and could end by this Fall if the economy proceeds on its current course of improvement. We think QE is over in the Fall.

In addition, Fed Chair Janet Yellen hinted at her press conference that the short term Fed Funds Rate could begin to rise six months after QE III ends. The news sent both Stocks and Bonds plunging on the notion that the Fed induced markets will have to stand on their own two feet in 2015.

Beginning in April, the Fed will reduce Bond purchases by a total of $10B, split between Mortgage Backed and Treasury Securities. The New York Fed will now purchase $25B in Mortgage Bonds and $30B in Treasuries per month. However, from the statement, "The Committee's sizable and still-increasing holdings of longer-term securities (Mortgage Bonds) should maintain downward pressure on longer-term interest rates."

In economic news, Weekly Initial Jobless Claims rose by 5K in the latest week to 320K versus the 330K that was expected. Claims continue to hover near lows seen in November as the labor markets continue to work through the post-recession malaise. The 4-week moving average, which irons out seasonal abnormalities, fell by 3,500 to 327,000, also marking the lowest level since the end of November. The data didnt have much of an impact on the markets.

Later this morning at 10:00, the Philly Fed Index (expected 2.0) and Existing Homes Sales (expected 4.60M) will be released and could offer some volatility.

S&P futures were pointed lower this morning as investors take the opportunity to book some profits after the recent record levels. With the Fed easing back on the pedal, a pullback in the Stock markets could take place and may ultimately give bonds a boost.

Technically, the 4% coupon has fallen below all support levels offered by the 50, 100 and 200-day Moving Averages and has lost 118bp since last Friday. With such a steep drop in a short period of time and after yesterday's Lock Alert, we are recommending to Float on any new transactions. But with no clear lines of support below, we are also very cautious as the day progresses. As always, stay tuned.

Joe Shamie NMLS # 241432

First Choice Loan Services NMLS # 210764

First Choice Bank NMLS# 177877

866-970-3400 x-5135

jshamie@fcbmtg.com