Wednesday - May 28, 10:55am ET

Current Trend Direction: Sideways to higher

Float/Lock Bias: Cautiously Floating

Current Price of FNMA 4.0% Bond: $106.00, +31bp

Mortgage Bonds continue their trek higher. Why? There are many reasons including the tepid economy, lack of supply coming to MBS market and the Feds QE easily sopping up all supply, and the reemergence of the Eurodrama.

The European Central Bank (ECB) has hinted that it may cut interest rates or do some sort of asset buying program at next week's meeting. This news has weakened the Euro, strengthened the US Dollar and helped Bonds. We have always said the Eurodrama will be playing out for years and we are seeing the same issues rise again political and economic headwinds threatening the Euro existence.

Over in the U.S. Stock markets, the closely watched S&P 500 Index closed at yet another record high yesterday of 1,911.91, buoyed by the latest round of merger activity, the expected rate cuts in Europe along with the better than expected Durable Orders report yesterday. Stocks are lower this morning.

Last night, the Fed's Lockhart said that he was not in a rush for the Fed to end easy money policies and begin raising rates. The printing presses at the Fed will continue as long as inflation remains subdued.

There are no economic reports due for release today. The Treasury will sell $35B 5-year Notes and comes after yesterday's decent showing from the 2-Year offering.

Despite being in the middle of the spring buying season and with home loan rates at 8-month lows, mortgage applications continue to decline. The Mortgage Bankers Association reported that its Market Composite Index, a measure of total loan application volume, declined by 1.2% in the latest week, while the refinance and the purchase index both fell by 1%. The refinance index has seen a big decline from last year.

Technically, Mortgage Bonds are now at highs seen in May 2013, easily eclipsing the highs seen in October. There is a real good opportunity we may see a 2% 10-year yield before seeing a 3% handle. Enjoy the rates and remind clients of the screaming opportunity right now.

Joe Shamie NMLS # 241432

First Choice Loan Services NMLS # 210764

First Choice Bank NMLS# 177877

866-970-3400 x-5135

jshamie@fcbmtg.com