Last week was fairly choppy for mortgages, with the first half of the week seeing fast money profit taking and above average originator selling. Mortgage cheapening finally encouraged some real money support - albeit modest - by Thursday and spreads had recovered some of their earlier week widening.

The near-term outlook for mortgages remains somewhat pessimistic. Rolls are not attractive, supply is strong, overseas buyers are showing limited support at current yield levels, real money is no longer underweight and liquidity tends to decline in the latter part of August, as many participants are on vacation. Weakening is likely to draw in some opportunistic buying, but that is expected to be limited. JPMorgan Securities analysts favor an underweight to mortgages as fundamentals and short-term technicals are poor. They also prefer selling 5.5s versus 5s as month-end support should favor 5s on a market share increase.

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