Mortgages have been on a tear since the start of 2003. Banks, CMO desks, insurance companies and money managers have all been heavy buyers. Spreads in Fannie Mae 30-year 5.5s through 7s have tightened an average of 18 basis points since the start of the year, while Dwarfs are 14 basis points firmer. Analysts at RBS Greenwich Capital believe that the strength in 30s is most likely due to technicals. Further, they believe this will dominate fundamentals over the short run, and until the yield curve begins to flatten and the Fed starts to raise rates. As a result, says Greenwich analysts, while "mortgages have moved very quickly to tighter valuations so far in 2003, we do not feel that this means that investors have missed the boat if they have been uninvolved so far."

Roll-related trading was also a dominant theme last week. Rolls on Fannie Mae 5.5s and 6s were trading through fail all last week as 48-hour notification for 30-year conventional MBS approached due to the limited supply situation.

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