As the summer draws to a close, normal trading activity resumed last week with active two-way flows. There was profit taking following Hurricane Katrina while the market sold-off from the previous week's rally. However, flows turned to better buying mid-week from both real and fast money helped in part by paydown reinvestment and a more stable market by Thursday's early trade.
The slight backup and steeper curve encouraged the return of up-in-coupon in 30s - with 5.5s and 6s benefiting. Lower coupons, however, experienced better interest following the August paydown release. Originator selling, meanwhile, picked up from recent daily levels of $1 billion, averaging closer to $1.5 billion last week.