Mortgages experienced a pretty decent recovery last week, sources said, much of it happening earlier in the week. Near the close of the week, prices for mortgage securities rose, as the volatile stock market calmed down a bit and spreads became more stabilized.

"I think people are ready to go on spring break, with the Easter and Passover holidays," said Art Frank, head of mortgage research at Nomura Securities. "So I think that we're getting the kind of pre-holiday blahs today, and we're probably going to get even more of that tomorrow (Thursday)."

According to Frank, there was good buying from a variety of investors last week, but by mid week the flows had become much lighter. Across all spread products early in the week, participants saw a great deal of tightening, with swaps, agencies and mortgages experiencing the biggest tightening of all. In fact, last Monday was the best day that spread product had seen in a long time.

With Fannie Mae current coupon mortgage spreads at 182 over Treasurys by press time last Wednesday, Nomura's Frank says, "We've been kind of treading water since then."

The residential mortgage-backed securities sector was fairly subdued by last Wednesday, with investors keeping an eye on equities and generally preparing for a long weekend. Near close, 30s were underperforming by five ticks, with Ginnie Maes off 5.5 ticks versus 4.8 ticks for conventionals. The worst performing coupons were 6s and 6.5s, which had been leading earlier in the week. The best performing coupons by pre-holiday time last week was Ginnie Mae 8.5s, which were recommended on the attractive roll.

Fifteen-year paper did slightly better than 30s, as the five-year part of the curve wasn't as strong in the long end. In late afternoon trading, the sector was underperforming by 2.7 ticks.

Mortgages underperformed other spread sectors, which were mostly unchanged to a tad softer. Thirty-year Ginnie Maes were two basis points wider in 6s through 7.5s. Conventionals were about two to three basis points weaker across the board. In 15s, Ginnie Maes were one to three basis points wider in discounts versus three to four basis points in conventionals. In 7.5% bonds, spreads were slightly tighter.

Ginnie Mae issues did not gain as much as their Fannie Mae counterparts last week, though they were the best performers in the mortgage market last month. The Fannie Mae current coupon now yields 13 basis points more than similar Ginnie Mae issues. Over the past year, Fannie Mae issues have yielded two basis points less than Ginnie Maes.

At press time, sources were saying that trading desks would be manned by skeleton staffs ahead of the holiday weekend.

With all that was going on in the stock market last week, mortgage stocks seemed to have had a strong week as well. With the Dow Jones industrial average and Nasdaq composite index both up substantially in last Tuesday morning's trading, mortgage lenders' stock prices were trading normally with most up and a few down, one day after the group was mixed with a few more up than down as the Dow and Nasdaq both posted impressive gains in the wak of last Friday's carnage.

The largest gain among the group was posted by Household International, whose shares were up $1.56, followed by Golden West Financial, up $1.4, Bank United, up $1.31, the PMI Group, up $1.25, and Dime Bancorp, up $1.00.

CMBS Report In

According to a CMBS report issued by Moody's Investors Service last week, the rating agency anticipates that U.S. CMBS issuance will remain soft for the balance of the year and will result in a decline of 20% or more relative to 1999 levels, notwithstanding the expected increase in floating-rate product.

The composition of CMBS volume changed during this year's first quarter, most notably with a sharp drop in U.S. issuance and a sharp increase in international issuance. However, the $3 billion pickup in international volume (from $2 billion to $5 billion) offset less than half of the $8.5 billion drop in U.S. volume (from $16.7 billion to $8.2 billion).

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