As September trading got underway following a long weekend, mortgages got off to a shaky start. Volume started off light, but picked up quickly as Treasurys turned around at mid-morning.

Flows were directed toward better selling as Treasurys sold off and then even as they recovered following strong performance gains made in the last two weeks of August. The widening did interest money managers, hedge funds, and servicers - primarily in 5.5s and 6s. Still, sellers reportedly outnumbered buyers by 3:1. Supply averaged $2 billion, mostly in 6% coupons, which was a factor in Tuesday's weakness given the lack of buyers. Spreads ended wider to the curve by seven and six ticks in 5s and 5.5s, and by five and four ticks in 6s and 6.5s. Versus swaps, spreads ranged from four ticks wider in 5s to two ticks weaker in 6.5s.

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