Mortgage flows were generally light as the market waited for late week data, particularly Friday's CPI report. Starting midweek, servicers and fast money were moving down in coupon as the market strengthened. There were pockets of buying from real money - mostly in higher coupons, while Asia remained mostly absent. In addition, there was also better buying in 15s versus 30s. Overall, however, the week saw continued better selling. Originator selling, meanwhile, held to around its $1 billion per day average.
The highlight of the week was actually related to Class A settlement. The market was jolted as those taking delivery received FNMA 5 mega pool 745275. This was the largest of the three super megas from the January/February period, noted JPMorgan Securities strategic principal trader David Montano. He added that this wasn't the only recent mega that has reappeared. In fact, several billion in megas off FNMA 5s created this summer have also reappeared and has caused the float in FNMA 5s to rise substantially. This could increase further if the market continues to rally, Montano said. In addition, he noted that the Street is heavily long seasoned FNMA 5s from money manager bid lists. As a result, Montano believes that pay-ups will flounder in the next few months as prepayments converge on TBAs and the 2003 vintage.