Mortgages were slammed last week on the selloff, magnified by convexity-related selling from mortgage participants. Since Friday, July 11, the 10-year yield has backed up 35 basis points as of mid-day Thursday. At the same time, the increase in yields caused an avalanche of originator supply totaling more than $15 billion over the first half of the week. This was double the previous week's level.

The increased market volatility and supply kept investors at the sidelines for most of the week. Institutional accounts started to appear late Wednesday to take advantage of the cheaper price levels. As a result, spreads widened about eight basis points on 30-year Fannie Mae 5s through 6s. Meanwhile, 15-year widening was limited for 4.5s and 5.5s, but similar for 5s.

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