MBS trading activity could only be characterized as "lackluster" last week as the market held in range-bound as it waited for last Friday's July employment report. Investor flows were generally two-way, though down in coupon or into 15s was the more dominant direction. Volatility ticked slightly higher over the week on the number of key economic reports due out for the week, starting with the payrolls report, and into Tuesday's Federal Reserve meeting.
This is one reason 15s were favored last week, as it allowed investors to lower portfolio exposure to short volatility, but remain long MBS. Originator selling was light, averaging about $500 million per day, consisting primarily of 30-year 5.5% and 6.0% coupons. Last week also saw the start of roll-related trading. Traders were surprised at the early start; however, they attributed it to the FOMC meeting, the fact that certain players waited too long in July, and because the market had rallied recently. The 48-hour notification for 30-year conventional MBS begins this Tuesday.