Mortgages recovered their April losses last week and then some. According to Lehman Brothers, month to date through April 19, the MBS Index had returned seven basis points in excess return versus Treasurys. For the month ending April 13, excess return had been at minus seven basis points. The MBS Index is up a respectable 51 basis points year-to-date.

The sector benefited from active buying last week from a wide range of investors including banks, money managers, insurance companies, and fast money. Buying flows picked up sharply following the release of the Federal Open Market Committee minutes that hinted that the committee might stop at 5% on Fed Funds. The support even continued after the stronger-than-expected CPI number despite the added uncertainty about future FOMC action. Flows were directed both and up and down the coupon stack. FNMA 5s and 5.5s benefited from news of good-sized mega creation in April: two 5% pools totaling $6 billion, and one $1.3 billion 5.5% pool. Meanwhile, higher coupons benefited from the steeper curve.

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