With the Fed on a tightening trend, analysts said that investors have to prepare mortgage valuations for the impact of the curve reshaping.

In a recent report, Lehman Brothers analysts wrote, "one of the biggest developments in the bond markets has been the recent dramatic curve flattening." Analysts noted that in the past eight months the two- to 10-year Treasury slope has flattened by roughly 150 basis points and has broken through 100 basis points for the first time in recent history. Aside from this, curve volatility has also risen.

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