Market activity started off slow last week ahead of three notable events: Hans Blix's report to the United Nations Security Council regarding Iraq on Monday; Tuesday's State of the Union address from President Bush, and Wednesday's rate statement from the Federal Open Market Committee. In addition, on Tuesday originators dumped nearly $4 billion of supply on a sidelined investor market. The passing events, as well as supply and weakened spreads, were enough to draw in investors by late Tuesday, a turn that continued through Wednesday's trading session. In Thursday's session, originators were again heavy sellers bringing around $3 billion by mid-day; however, the brief widening pulled in buyers quickly.

Last week's buying interest extended beyond the conventional 30-year sector for once. A backup in yields focused attention on extension risk and thus, active buying in the 15-year sector. The sector also got support from CMO-related buyers. Ginnie Maes also performed well on better interest related to light supply relative to conventionals, and to less volatility in rolls. As a result, over the Wednesday-to-Wednesday period, both Ginnie 30s and 15-year MBS outperformed Fannie Mae 30s with the exception of the current coupon, which tightened six basis points in all sectors. Fannie 30-year 6s through 7s were flat to a tad weaker; Ginnie 6s through 7s ranged from minus four to minus two basis points; and dwarf 5.5s and 6s were seven basis points firmer.

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