The market got right down to business as participants returned from their long Thanksgiving breaks. In the first two and a half days of trading, Treasurys were whipped sharply higher on a strong flight to quality and then retraced most of that on Tuesday and Wednesday morning as it was unwound. On Monday, the bid was instigated by a report from Goldman Sachs that said it expects HSBC will have to take another $12 billion in write-downs, as well as, news that Sen. Charles Schumer had sent a letter to the FHLB regarding its exposure to Countrywide Financial.

Volume in mortgages was above normal in two-way flows on Monday and Tuesday. On Monday's sharp rally, servicers were adding duration by actively buying 5.5s outright and moving down in coupon from 6s into 5.5s. Other investors were generally better sellers, with particular note made of bank selling in 5s as prices improved. Tuesday saw overall better selling, especially from servicers who were now shedding duration by moving up in coupon as the market sold off or by selling outright. Mid week was finally seeing a more supportive tone in the market with prices actually higher while Treasurys were lower and with volume taking a breather after holding sharply higher in the previous two sessions. Getting the market off to a positive start on Wednesday was decent Asian buying, focused in gold futures, as well as domestic fast money. Spreads were substantially tighter heading into mid day on Wednesday.

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