While outstanding 30-year MBS supply has been declining in the past two years, until this year, the supply from other fixed-rate MBS sectors has filled in the gap, said a recent report by Bear Stearns. For instance, the outstanding 30-year MBS universe declined by 2% last year. But this was made up for by a 33% rise in other fixed-rate mortgage-backeds. The resulting 8% increase in fixed rate MBS approximated the 9% long-term trend growth in the past 14 years.

Moreover, along with 30-year supply contraction, 15-year supply has declined as well. Bear Stearns said that the total supply in fixed rate MBS has dropped by 0.4% through August. "If net supply stays negative through the end of this year, it would mark the first time in our 14-year data series that fixed MBS has fallen," analysts wrote.

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