In a report released yesterday, FTN Financial, analysts discussed their expectation regarding the GNMA market and GNMA/FNMA relationship in the 1H10.

Analysts discussed the reasons why GNMA/FNMA swaps have been cheap on a historical basis in 2009. These include the increase in GNMA supply that resulted from the collapse of the subprime and Alt-A sectors; the uncertainty regarding prepayments as a result of buyout risk, especially in the 2006-2008 vintages; and the lack of Federal Reserve support in the GNMA market compared to the conventional side. 

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