The CMO machine is riding slower this year versus 2003, as CMO production plummeted to a monthly average of $20 billion so far compared with $40 billion last year. However, analysts remain optimistic that CMO production will pick up going forward.

The drop in CMO production is not unexpected, said analysts from Deutsche Bank in a recent report. "An overwhelming consensus for higher rates, significantly lower refinancing needs, and persistent richness of mortgages all contribute to investors' recent discontent with the CMO market," they wrote.

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