Mortgages awoke from their long winter's nap and took off as investors embraced attractive carry, declining prepayment speeds, less supply and an expected range-bound rate environment. The strong demand more than offset the greater-than-expected originator volume that came last week, averaging roughly $1.5 billion per day.

Spreads tightened three basis points on 30-year Fannie Mae 5% through 6% coupons and six basis points for 6.5% coupons. Dwarfs, on the other hand, widened one to two basis points for 4.5s through 5.5s, and six basis points for 6s. Countrywide Securities attributed the weakness in 15s to curve flattening and weakening rolls. The firm also views 15-year pricing relative to 30s as too strong given the slope in the yield curve between five- and 10-years.

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