Even with a flattened yield curve, half of all new mortgage originations are still being driven by refinancings rather than purchases. As a consequence, analysts expect the 15-year share of supply to dip and 30-year production to rise. Further changing the supply landscape, the decline in ARM share of total originations is also expected to continue, driven primarily by home prices moving out of potential buyer's affordability range.

Citing the Lehman Brothers' Aggregate Index return attribution for June showing volatility and convexity as the main performance drivers in 15s versus 30s, RBC Dain Rauscher Vice President Kevin Jackson, noted that net 15-year supply has contracted by $60 billion in the past year, adding that recent prepayment data on the sector has showed comparatively slower 15-year speeds. "Volatility, convexity and strong technicals outweighed the flatter curve," said Jackson.

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