In a return to a type of debt issuance which has become a little out of style, sources reported last week that they saw a Chase Securities/Freddie Mac MBS deal which was callable.

This was probably the most exciting event last week in the primary market, as the majority of traders and analysts noted that the MBS week was extremely quiet and uneventful.

"Spreads have bounced around a little, and were out just a touch, and perhaps accounts were looking to pick up some incremental yield, but overall it was a really quiet week," said Chris Perkins, the head of the MBS desk at Morgan Keegan. "There is just so much credit uncertainty in the corporate market, that we have seen accounts looking at MBS as a flight-to-quality for spread product."

The Chase callable CMO deal was a bit surprising, sources said, since the callable market faded away quite a bit due to the fact that certain cashflows became unsellable, and the few large hedge funds that were buying callable securities several years ago seem to have disappeared.

Although details of the current deal could not be obtained by press time, Freddie Mac had two callable pools so far this year, one done in April and the other in February, both for $100 million, and led by Goldman Sachs.

"But there is not a flood of issuance in this stuff," said a trader.

As of last Thursday, mortgages trailed as Treasurys rallied, helped by equity weakness, and the sector experienced slightly better selling.

Near close last week, 30s were underperforming by 1.9 ticks and 15s were off close to three ticks. Fifteens are under some pressure as the overseas contingent and banks have been absent over the last few days.

First Union CMBS Prices

The $1.142 billion First Union conduit, one of the bigger transactions of the year, reportedly went very well (see pricing p. 3).

Compared to other deals, it had cleaner collateral pools, low leverage, and low bankrupt retail. Despite the fact that a few of the borrowers had once been in bankruptcy, the deal seemed to meet good demand.

"It had less hotel, less retail exposure, and was not as lumpy as fusion-style deals," said a CMBS trader. "There were a couple of large borrowers that had been in bankrupcy many many years ago."

Additionally, First Union has typically enjoyed tight pricing, yet the spreads on this deal were right on the screws, as opposed to gaining a basis point or two.

"But that may be more of a sign that the corporate market is in disarray," the trader noted. "There are financial problems at banks, with more companies going bankrupt."

Roukema Makes It Official

On the regulatory front, Rep. Marge Roukema (R., NJ) officially announced plans to seek the chairmanship of the House Banking Committee.

In her announcement, she said she was seeking the chairmanship not only based on her seniority, but her contributions to the committee for two decades.

Although he hasn't formally announced it yet, Rep. Richard Baker is expected to challenge Roukema for the chairmanship. It will be in December before a decision is made.

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