Mortgage market activity was steady and two-way last week ahead of Thursday's Federal Open Market Committee statement. There was some early week support from index funds for month-end. Lehman Brothers stated that the MBS Index is set to extend a modest 0.06 years last Friday. Overseas and real money investors were also better buyers mid-week as yields backed up.

There was short covering in 5s as well, which held up the coupon rather well despite expectations of better selling at the start of the week, following the Bank MBS Holdings report from the Federal Reserve released June 24 (see story p. 15). The holdings report showed large banks sold $64 billion in MBS - which JPMorgan Securities called the largest monthly drop in holdings ever - and has led to a lot of head scratching by analysts and traders.

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