MBS flows last week centered around better buying, particularly from banks, money managers and arb accounts due to the dramatic widening in spreads in recent weeks on supply and prepayment fears. Helping the turnaround was the 55-basis-point back-up in interest rates over the past week and a half that has Wall Street analysts revising peak prepayment levels.

Somewhat surprising was the lack of originator selling, limited to about $1 billion per day on average, given that mortgage rates hit record lows last week. Apparently, mortgage originators bypassed the Street and sold directly to mortgage servicers. The combination of strong buying and limited selling contributed to spreads tightening about 10 basis points on average for most coupons.

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