Wednesday - August 6, 2014 - 11:00 am ET

Current Trend Direction: Sideways at resistance

Float/Lock Bias: Still locking

Current Price of FNMA 4.0% Bond: $105.53, +6bp

Mortgage Bonds are near unchanged and off their best levels. Prices are receiving some support on news that Italy has fallen back into a recession, while German factory orders fell to levels not seen in three years. No surprise to us that the Eurodrama would re-emerge! The ECB will likely not do anything tomorrow as it relates to interest rate cuts or some more bond buying, but this is only because Europe is on vacation in August. We fully expect the ECB to be more accommodative as the problem worsen in the Fall. This along with QE3 tapering should make the US Dollar strengthen.

Stocks have really gotten clobbered over the past week or so, but during this slide, Bonds have barely moved higher. The only real buyer of Mortgage Bonds has been the Fed, and with the tapering continuing, sell supply has been nearly matching the Fed's buying power. For instance, today the Fed is not purchasing any 30-Year Fannie or Freddie Mortgage Bonds, which is why we see a move higher in Treasury prices and no gains in the Mortgage Bond arena.

In corporate news, Sprint has ended its pursuit of a T-Mobile merger, while 20th Century Fox withdraws its offer for Time Warner.

The Mortgage Bankers Association reported today that its Market Composite Index, a measure of total loan application volume, rose by 1.6% in the latest week, though activity is well below year-over-year levels. The refinance index rose by 4%, while the purchase index declined by 1%.

Yesterdays chart says it all. Clients should still consider locking with prices at current levels.

Joe Shamie NMLS # 241432

First Choice Loan Services NMLS # 210764

First Choice Bank NMLS# 177877

866-970-3400 x-5135

jshamie@fcbmtg.com