Mortgages saw active buying for the first couple of days last week from banks and money managers. The sector also benefited from roll-related trading as 48-hour notification approached. In addition, mortgage bankers have remained limited sellers, which also provided support for the market. Late Wednesday, however, the sector came under pressure when 10-year yields dipped to 4.64% as equities continued to falter. Over the Wednesday-to-Wednesday period, spreads widened one basis point for 30-year Fannie Mae 6s and 6.5s; plus three basis points for 7% coupons; and five basis points weaker in 7.5s. Fifteen-year MBS moved out two to three basis points.

Street analysts are generally neutral on the sector due to increased prepayment risk, and especially on increased supply. UBS Warburg commented, "with mortgages still fully priced to the GSEs, we are unsure who absorbs that supply."

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