Mortgages outperformed over the week based on expectations that the Federal Reserve will initiate QE3 at its September meeting and a drought in supply.

Through Thursday, excess return to Treasuries on Barclays MBS Index was +14 basis points which brought month-to-date performance to +27. Meanwhile, the current coupon spread to 10-year notes tightened five basis points to +95 as the yield declined to 2.47% from 2.50%.

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