Last week's trading sessions were primarily influenced by the inflation news and the Federal Open Market Committee minutes. Both the PPI and CPI reports showed an improvement in inflation. The overall PPI plunged 1.6% in October, versus a consensus decline of 0.4, and the core was down 0.9 versus expectations of a 0.1 increase. Meanwhile, CPI declined 0.5 versus expectations of -0.3, and the core came in at 0.1 versus a consensus estimate of 0.2. Offsetting the market strength was a stronger than expected Empire Manufacturing Survey and the FOMC minutes. The minutes suggested the Federal Reserve would remain on hold for the foreseeable future as the committee expects economic growth to remain decent into next year, which reduces the odds of an easing in rates anytime soon. Overall, the 10-year Treasury held within a fairly tight range - closing between 4.59% to 4.62% - with volatility remaining low, resulting in a relatively healthy environment for mortgages.

According to Lehman Brothers, the MBS Index has outperformed Treasurys by 23 basis points so far in November, which brings the year-to-date performance to an impressive 111 basis points. The week saw two-way flows with participants - money managers, banks, overseas, hedge funds, servicers - taking advantage of any weakness to add, and rallies to take profits, particularly Asian investors. While activity was all along the coupon stack, depending on the market changes and yield curve shifts, it was focused primarily in the belly of the stack. Originator selling was generally uneventful, holding to just over $1 billion per day on average.

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