What a week it was! Treasuries received a lot of early week support on equity weakness, topped mid-week by the WorldCom accounting fiasco. When the markets opened on Wednesday following the news, 10-year yields had dropped about 19 basis points from Tuesday's close to below 4.70%. As of mid-day Thursday, yields were back to the high 4.70s.

All of this, of course, sent shivers through the mortgage market last week on potential convexity buying, increasing refinancings, and higher supply. Overall, however, mortgages held up fairly well. While there was convexity buying, it was spread out among Treasurys, swaps, and lower coupon mortgages. Mortgage banker supply, meanwhile, has yet to really materialize. Supply is running at between $1.0 billion and $1.5 billion, though one day saw over $2 billion hit, a good percentage of which was in 15-years. Still, it was in a manageable range. While there was supply-induced spread widening, it attracted hedge funds, money managers, and banks. In addition, Friday's session is expected to draw month-end index buyers. All-in-all, over the Thursday-to-Thursday period, spreads were only one to three basis points wider in 30-year 7% coupons and lower, slightly tighter in 7.5s, and wider in higher coupons.

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