Last week's trading session was range bound and uneventful. Originator selling held at an average of $1 billion per day, while investor flows were mixed. There was profit-taking, as well as steady interest in lower coupon 30s. Over the Wednesday-to-Wednesday period, spreads on 30-year Fannie Mae 5.5s moved out nine basis points, 6s were out one basis point, while 6.5s and 7s were trading five basis points weaker. Dwarf 5s, 5.5s and 6s were nine, six and four basis points wider, respectively.

The lack of supply in a strong housing market continues to be a surprise. According to Lehman Brothers analysts, the total size of the 30-year fixed rate market has shrunk by $70 billion since last July. They attribute the decline to banks holding onto more mortgage loans lately. In fact, according to their figures, real estate loans on bank portfolios have grown by $200 billion in the last six months.

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