Through mid-week, MBS trading was lackluster given the GSE headlines and the lack of economic data. Flows were two-way, but favored better selling on the lack of direction. Activity, however, came from a wide range of domestic investors - real and fast. Investors were generally moving up in coupon or into 15-year MBS. On Thursday, active buying emerged, particularly in the lower coupons, on a combination of March prepayments and the start of roll-related trading associated with the upcoming settlement in 30-year conventionals. Meanwhile, originator selling averaged about $1 billion per day.

Analysts are currently mixed on the sector. Technicals remain very favorable - especially due to overseas support which has some analysts neutral to slightly overweight. A further boost for potential Japanese support came last week when the Ministry of Finance issued some guidelines for foreign reserves. Citigroup Global Markets analysts said foreign asset diversification into various bonds is encouraged, including securitized bonds that have high liquidity and certainty of redemption.

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