Mortgages continued to see strong buying interest and limited originator selling last week. Money managers, banks, and arb accounts were the major players. As was the case last week, the focus of investor activity was up in coupon and in 15-year MBS. Over the Wednesday-to-Wednesday period, spreads on 30-year Fannie Mae 6s and 6.5s firmed one to two basis points, while 7s through 8s tightened 12 to 13 basis points. In 15s, spreads moved in four to six basis points on 5.5s and 6s, and 11 to 16 basis points in 6.5s and 7s.

The overall bias for the sector by Street analysts is a slight overweight despite the strong performance put in so far this year. There are some calls for protecting profits, but the prospect for a rangebound market with the Fed move to neutral, declining volatility, attractive spreads, ongoing credit concerns in corporates, and declining supply with strong demand, remain favorable for mortgage performance over the near term.

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