Mortgage activity last week held steady. Spreads continued to tighten amidst limited supply and ongoing demand primarily from banks, hedge funds, insurance companies, and others. The week also included month-end, which provided additional support from index funds. Over the Wednesday-to-Wednesday period, spreads firmed five basis points in 30-year Fannie Mae 5% coupons, nine basis points for 5.5s, and 11 basis points for 6s. In dwarfs, 4.5% coupons tightened four basis points while 5s were in seven basis points.

Supply last week held to an average of just $1.5 billion per day. Looking ahead, the supply outlook is not favorable. According to JPMorgan Securities, the amount of outstanding fixed-rate supply will decline sharply over the next couple of months (See related story on p. 14). Specifically, they are predicting a decline of about $10 billion in April, with the 30-year sector losing about $20 billion. Over the last eight months, says JPMorgan, outstanding 30s have declined by about 7% of the total outstanding in August of 2002.

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