Tuesday - August 12, 2014 - 11:20am ET

Current Trend Direction: Sideways below resistance

Float/Lock: Short Term Locking

Current Price of FNMA 4.0% Bond: $105.44, +6bp

Mortgage Bonds continue their sideways path as the geopolitical headlines from the Mideast and Ukraine subside for the time being. The dog days of August have set in with many investors away on vacation while Europe and the US Congress unplug until September.

The Eurodrama is starting to perk up. Italy recently reported being in a recession. And now France is in the headlines as they are preparing the EU and French citizens that they will miss fiscal targets for both 2014 and 2015 due to record unemployment, 16 year low housing starts and slipping industrial output. The EU will be forced to do more to stave off deflation and try and get these countries to grow together. For those long-term readers, you are aware of the political and financial capital at risk here. If conditions worsen, which is likely it will be a bit unsettling herethis would be positive to the US Bond Market.

Trading volumes will remain below normal this week with little economic data to influence the markets. The Fed will not be focused on buying in 30-Year Mortgage Bonds today, with purchases being made in the 15-Year and Ginnie Mae Securities.

The Treasury will sell a total of $67B in Treasuries this week beginning today with $27B 3-Year Notes and the results could impact trading when released at 1:00pm ET.

A major reason why new home building has not substantially recovered is because outside of the upper classes real wages have been stagnant since the end of Great Recession. Worse, despite a rising stock market, a majority of Americans own no stock. Lastly, among households headed by individuals under 40, net worth is still, on average, lower than it was before the housing bust. We desperately need wage growth.

Technically, the 4% coupon is currently trapped beneath resistance provided by both the 25 and 50-day Moving Averages, failing to successfully break above those levels for a sustained period since early July. Clients should consider locking in the short term, days to a week out.

Joe Shamie NMLS # 241432

First Choice Loan Services NMLS # 210764

First Choice Bank NMLS# 177877

866-970-3400 x-5135

jshamie@fcbmtg.com