An unexpected squeeze on Fannie Mae 8.5s last week created a small market frenzy, as investors noticed a shortage of deliverable to-be-announced supply.

"It's an extraordinary short squeeze," said Art Frank, head of mortgage-backed securities research at Nomura Securities. At one point this week, he said that the March/April roll on Fannie Mae 8.5s was bid at 17/32 and offered at 19/32. With fair value being 6/32, it made the rolls 11 ticks special on the bid side and 13 ticks special on the offered side, he said.

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