The new year got off to a good start for mortgages. Minutes from the Federal Open Market Committee's December meeting suggest that they are nearing the end of their tightening cycle. The market rallied on this news, and moved the 2s/10s spread back into positive territory from flat to slightly inverted at year-end. This encouraged real and fast money, servicers and dealers to become active buyers. The re-steepening of the curve also led investors up in coupon into mostly 5.5s and 6s in 30s. Meanwhile, 15s also saw strong support with an up in coupon preference as well. Originator selling picked up as the week progressed and by later in the week, activity was near its $1 billion per day average. Supply has been concentrated in 5.5% coupons.

The near term outlook suggests better buying should continue for the next few days after which better profit taking could enter the picture. Traditionally, the sector benefits from the drop in vol following the employment report. Also, Monday should see reinvestment of December paydowns. JPMorgan Securities is currently estimating paydowns to be around $41 billion.

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