Wednesday - May 7, 2014, 10:30am ET

Current Trend Direction: Pausing at 2014 highs

Float/Lock Bias: Short term locking, days to a few weeks

Current Price of FNMA 4.0% Bond: $105.25, unchanged

After closing slightly above the highs seen in November and February yesterday, the benchmark 4% coupon is unchanged, and off the worst levels of the morning.

The Sell in May and Go Away scenario in the Stock markets that we mentioned in Monday's Daily Update has been holding true so far this month. The Dow is down just over 1% in the first four trading days in May, after hitting a record high last week. Corporate earnings season is winding down and of the 397 companies that have reported in the S&P 500 Index as of Tuesday morning, 67.5% have beat expectations, above the 63% average since 1994 and the 66% beat rate for the past four quarters.

But the losses in the Stock markets this month haven't produced big gains in Mortgage Bonds. The 4% coupon saw a high of $104.78 last Wednesday on April 30 and is at 105.09 today, a modest 31bp gain. Thus, our short term locking stance.

In economic news, the first reading on Q1 2014 Productivity fell by 1.7%, below the -1.2% expected. The harsh winter weather is being blamed on the decline in worker productivity as it prevented some from getting to their jobs. A decrease in Productivity led to a sharp gain in Unit Labor Costs, rising by 4.2%, well above the 2.5% expected. The news had little impact on trading.

Mortgage activity bounced back last week as the Mortgage Bankers Association's Market Composite Index, a measure of total loan application volume, rose by 6.3%. The refinance index was up 2% while the purchase index surged by 9% as the spring buying season is well underway and home loan rates are at the best levels of the year.

Fed Chair Janet Yellen is on on Capitol Hill today in front of the Joint Economic Committee at 10am ET as she testifies on the health of the U.S. economy. The markets will be looking for any hints on the current tapering of the Fed's Bond buying program. This could definitely be a market moving eventstay tuned.

At 1:00pm ET, the $24B 10-Year T Note auction results will be released and comes after yesterday's solid performance from the 3-Year offering.

Technically, as mentioned, the 4% coupon is just beneath the highs seen in November and February and seems to be stalling at current levels. With Stock prices trying to regain some ground today, we will continue to recommend short term locking, which is measured in a few days to a few weeks. 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