Though it was not a very exciting week in the mortgage-backed securities market, last week saw a modest supply for mortgage bankers, with some small-scale investor activity.

At press time, the MBS market closed within a three basis point range, from 188 basis points over Treasurys to 191 basis points over Treasurys for the week.

"It was a pretty quiet week, with the one interesting event being the Bond Market Association meeting regarding changes to Ginnie Mae pools," said one MBS trader.

Mortgages, which had been holding their own for most of the week, sank last Thursday afternoon as equities dropped and Treasurys gained on the flight-to-quality. Near close, 30s were underperforming by 2.3 ticks with 15s doing slightly better at minus-1.4 ticks.

There was some limited buying activity late in the week in front of the weekend's shortened holiday trading session, but this slowed in the afternoon as equities plunged. In recent days, mortgages have seen good buying by all account types, including banks. Interest has been all over the coupon spectrum, although there is slightly better up-in-coupon swaps on the prospect of higher interest rates.

Support for mortgages has also been coming from the collateralized mortgage obligation machine, where about $4 billion is currently scheduled to settle in June.

Mortgages trailed other spread sectors late in the week. Spreads on 30-year 6s through 8s were two basis points wider, with 8.5s out three basis points and super-premiums even wider. Fifteens were mixed with 7s through 8s unchanged to slightly tighter on moves up-in-coupon. Sixes and 6.5s were one basis point wider on the day, last Thursday. Swaps were one basis point weaker in 5s and 10s, agencies were three basis points narrower in 5s and flat in 10s, and corporates were slightly tighter in quiet trading.

JPM CMBS Under Way

On the commercial mortgage-backed securities side, there were a couple on new deals in the pipeline for the week.

"There is secondary trading, good two-way flows," said a CMBS trader. "There were some good bid list days, and $200 million of triple-A. There are a couple of IO's as well."

Also last week, J.P. Morgan & Co. got ready to sell $622 million of floating-rate commercial mortgage-backed securities, according to people familiar with the sale.

The sale's largest class, a $401 million 2.3-year triple-A rated part, is expected to yield 28 basis points to 30 basis points over Libor. One-month Libor was recently at 6.566%.

The securities are backed by 61 floating-rate loans on 72 properties, according to a pre-sale report from Fitch IBCA. The average loan size is $10 million, and J.P. Morgan made 92% of the loans and Chase Manhattan Corp. contributed five loans to round out the sale.

The banks are looking to sell the bonds this week, and it is the first major sale in the CMBS market since UBS Warburg and Lehman Brothers Inc. sold $1.4 billion in securities May 9. There are 11 other classes in the sale, ranging from triple-A-rated to non-rated, according to the Fitch IBCA report.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.