Since Federal Reserve Chairman Ben Bernanke spoke in mid-July to Congress, mortgages have performed very well on expectations that the Fed would likely pause in August. Further supporting this view was economic data that provided the Federal Open Market Committee with an opportunity to pause. The FOMC did not disappoint last week, holding the Fed Funds rate unchanged at 5.25%, with a statement that attempted to assuage any market concerns regarding the Federal Reserve's intention to remain vigilant in regards to inflation.

Lehman Brothers said that the MBS Index outperformed Treasurys in July by 20 basis points, and through Aug. 9, mortgages are up by another 18 basis points. Year-to-date, mortgages are up 70 basis points versus Treasurys.

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