Lack of supply became an issue at the forefront last week. Countrywide Securities, however, suggested in recent comments that relief may be in sight, especially if rates move higher, due to growing originator pipelines. Until this happens, one trader suggested that a potential liquidity problem, due to the lack of product, is beginning to adversely impact the roll market.
Events that have favored mortgages and contributed to strong spread tightening remain in play. These include record-level paydowns that must be reinvested, flat to negative net issuance, and the slow economic recovery which is keeping bank C&I lending low. In addition, there is the Treasury Refunding next week which tends to be favorable for mortgages, and, this week, month-end buying.