Even with the U.S, Treasury's September data showing an increase in foreign agency security investment, JPMorgan Securities analysts believe that expectations of foreign demand for MBS are highly overstated.

According to the Treasury International Capital data, net agency purchases - MBS and agency debentures combined - were at $15.5 billion in September, increasing from $10.9 billion in August. Specifically, Credit Suisse First Boston estimated net MBS purchases at $20.9 billion during September, rising from roughly $9 billion in August. September's MBS purchase volume is based on an estimated net $5.3 billion in Agency debt redemptions over the month, making the net MBS purchases higher than the total net agency number. Furthermore, the roughly $59 billion in net MBS purchases over the third quarter is the highest quarterly average year to date, CSFB reported. To compare, second quarter purchases were estimated at $31.7 billion while the year-to-date average is $42.7 billion.

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