The mortgage market came under pressure last week as Treasury yields rallied on weakness in the equity market. In fact, the 10-year Treasury closed at an all-time low on Tuesday, Sept. 24, at 3.64%. The market reversed on Wednesday as investors began moving back into stocks. The backup in Treasurys encouraged increased originator selling with daily amounts averaging between $1.5 billion and $2 billion.
Investor flows were mixed. Early week activity was light on the increased volatility in the market. In addition, investors were put off by agency debenture spread widening associated with Fannie Mae's large duration gap. As the market settled down in the last half of the week, buyers emerged to take advantage of the wider spreads. Money managers and CMO desks were the most active participants, focusing on the lower end of the coupon stack. Ginnie Maes also saw increased support as investors perceive the sector to have less prepayment risk than conventionals. In addition, the sector has been benefiting from a flight-to-quality bid.