Mortgage spreads ground tighter last week in better-than-expected activity. Buyers were expected to hold near the sidelines on the wait for Friday's May employment report, but they turned out to be fairly active. Investor groups included money managers, hedge funds, insurance companies and even some overseas support. At the same time, originator selling held to around $1 billion per day on average.

Investors may have been more confident to add to positions ahead of the payrolls report. For one, prices are considered to be slightly cheap. Also, regardless of the report, mortgages are expected to continue their steady move tighter. One trader said there is plenty of cash available to invest, particularly from banks, and a backup in yields provides an attractive investment opportunity. On the other hand, if the report were weak, odds would be lower for a June rate hike, thus allowing more time for the carry trade.

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