With the current steepness of the Treasury and funding curves creating quite a favorable environment for carry trades, "the carry is king" mantra has once again permeated the mortgage-backed market, analysts said.

Currently carry, rather than option adjusted spread, is driving relative value analysis. This is apparent because those who consider OAS, specifically the GSEs, are not in buy mode (see related story on page 16). Further, analysts noted that there has not been much correlation between zero volatility spreads and volatility.

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