The mortgage market saw active two-way flows last week. Good buying was noted from hedge funds, servicers, banks and arb accounts. Originator supply was less than $1 billion per day early in the week, but bankers hit the street with more than $2 billion on Wednesday afternoon as the market sold off. Over the Thursday-to-Thursday period, spreads on 30-year Fannie Maes tightened one basis point for 5% coupons; three basis points better for 5.5s and 6.5s; and seven basis points tighter for the popular 6% coupon. Meanwhile, 15-year mortgages did even better at minus four, eight and 10 basis points, respectively, for 4.5s through 5.5s.

While analysts range from underweight to positive on the sector, the majority of them are neutral. The sector remains rich, although technicals are favorable. In addition, the range-bound market favors the sector. On a near-term basis, mortgages historically have done well following the employment report and with the calendar flip.

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