Thursday - July 17, 2014, 11:05am ET

Current Trend Direction: Sideways, stabilizing

Float/Lock Bias: Carefully Floating

Current Price of FNMA 3.5% Bond: $102.25, +16bp

Weak housing data is boosting the Bond markets this morning. Also hurting Stocks and helping Bonds is word on increased sanctions on Russian business over the problems in Ukraine.

The Commerce Department reported that June Housing Starts declined by 9.3% from May to an annual rate of 893K, well below the 1.020 million expected. It was the slowest pace in nine months led by a drop in single-family homes and apartments. Building Permits, a sign of future construction, dropped by 4.2% to an annual rate of 963K versus the 1.037 million estimated. Fed Chair Yellen was spot on when she said Tuesday that the housing sector has recovered notably, but activity has leveled off and readings this year continue to be disappointing.

The Labor Department reported that Weekly Initial Jobless Claims fell by 3K to 302K to the lowest level in 9 weeks and below the 311K expected. The 4-week moving average fell by 3K to 309K, the lowest level since June 2007. And just when you think that employers are laying off less workers, Microsoft announced that it will be cutting 18K jobs over the next year in a restructuring. Ms. Yellen also commented on the sector on Tuesday saying that significant slack remains in the labor markets, highlighted by the continued slow pace of growth in most measures of hourly compensation.

This mornings economic news is the type that gives the Fed reason to hold the Fed Funds Rate a lot lower for a lot longer than most think. While we are seeing some inflation and some sectors doing well, the improvement in the economy is uneven and not broad based.

Technically, the 3.5% coupon and the 4% are testing resistance at the 25/50-day Moving Averages. With Stock prices lower and given Mortgage Bond prices are the lower end of the short term trading range, we will continue to carefully floating. 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