Tuesday - September 9, 2014 - 10:05am ET

Current Trend Direction: Sideways

Float/Lock Bias: Locking short term

Current Price of FNMA 4.0% Bond: $105.75, -12bp

Mortgage Bonds are drifting lower this morning after failing to break above resistance levels yesterday.

A report out by the San Francisco Fed says that researchers indicate that investors are underestimating how quickly the Fed can raise interest rates. Current forecasts from the Fed predict the Fed Funds Rate to rise to 1.13% at the end of 2015 and 2.5% a year later. Any talk of rising rates tends to spook the markets after the easy money policy enacted since December 2008. Below is the link to the report if one feels inclined to sift through the jargon:http://www.frbsf.org/economic-research/publications/economic-letter/2014/september/assessing-expectations-monetary-policy/

Throw in the added supply of $61B in Notes and Bonds this week and you have a recipe for pressure on the Mortgage Backed and Treasury security markets. The yield on the 10-Year T Note rose to 2.50% this morning, up from the 2.38% recorded last Friday, a pretty big move in a short period of time.

There are no economic reports due for release today, but the Treasury will be selling $27B 3-Year Notes today.

Technically, the 4% coupon continues to trade below resistance levels with no clear sign of a breakout higher. With home loan rates at 12-month lows and Mortgage Bond prices near the year highs, we continue to recommend short term locking, a few days to a few weeks. We continue to cite our Chart from Friday's Update that shows that Mortgage Bond prices have come under pressure after failing to break above the highs.

Joe Shamie NMLS # 241432

First Choice Loan Services NMLS # 210764

First Choice Bank NMLS# 177877

866-970-3400 x-5135

jshamie@fcbmtg.com