Spreads tightened more than 20 basis points throughout the week, however mortgages were fairly steady. That can be blamed on the Treasury market.

"A lot of the spread volatility was related to happenings in the stock market," said Greg Rosenberg, a mortgage-backed securities researcher at JP Morgan. "Most of the spread volatility was caused by movements in the Treasury market."

"The peak of spreads was Tuesday morning, when the Treasury market was at its peak in price," said Robert Calhoun, co-director of research at fixed-income specialists Tattersall Advisory Group. "And the tights recently were this afternoon before the stock market sold off, when the Treasury market was at its lows. Spread products aren't changing price and Treasurys are. So you just have to mark where Treasurys are to tell you where the spreads are."

Rosenberg added that spreads are likely to remain volatile going forward. "Both MBS and agencies narrowly outperformed swaps over the week - Friday through Thursday - buoyed by investor demand."

David Montano, head of MBS research at Credit Suisse First Boston, said comments made weeks ago about the GSEs are still having some effect on the market (see story page 1). "The mortgage/agency basis has been extremely volatile recently," he said. "The standard deviation of daily spread changes between mortgages and agencies has increased to more than three basis points per day over the last three weeks. This is to be compared with about 1.7 basis points per day in the first 10 weeks of the year."

Morgan Stanley Life Launches

With the Morgan Stanley Life commercial mortgage-backed deal set to price at the end of the week, the five-year paper was "way oversubscribed," said Calhoun, adding that the five-year paper was to price between Libor-plus 26 to 28. The 10-year paper was set to price at Libor-plus 40.

The "well-bid" five-year paper was, "just trading tighter because it's a little shorter paper, and also lower dollar price paper," Calhoun said, noting that new issue paper gets priced at a par and a half handle.

Down the pipeline, Calhoun said there are a few deals, "though none are of any significant size."

Agencies Still Look Good

For the long-term, Calhoun added that agencies are still looking cheap compared to Treasurys, though they have also tightened about 20 basis points over the week.

"They were well north of 130 late Monday, early Tuesday," he said. "And they've tightened in to the lower teens now, the 10-year agencies. On a long-term basis that still looks very attractive."

He noted that over the past five days prices of spread product have been virtually unchanged. The dollar price of Fannie 7.5s since April 7 has moved in a quarter-point range; whereas the dollar price of the 10-year note has traded in a two-point range.

And despite congressional testimony made early last week regarding systemic risk (see story page 2), the Ginnie Mae/Fannie Mae swap looked unchanged," Montano said. "Ginnie Mae/Fannie Mae 7s swap remains at around 25/32."

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