Despite the recently declining agency MBS marketshare, analysts expect the sector to regain ground with expected home-price deceleration combining with a diminishing bid for credit in non-agency MBS. There is also the added effect of GSEs increasing their presence in the ARM sector, an effort bolstered by the flattening yield curve.

"In the event of a slowdown in the housing market, the bid for credit in the non-agency market is likely to abate, making agency execution more competitive," reported Bear Stearns analysts in recent research, explaining that non-traditional agency mortgage product execution has been less attractive than in the non-agency space, particularly since the GSEs have a longer-term view on credit.

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