Mortgages continued to take its cue from market direction - outperforming when the market strengthened and underperforming on sell-offs. Throughout most of the week, there were good two-way flows with participation coming primarily from domestic real and fast money. A sharp sell-off in Tuesday's trading session did encourage some overseas buying on Wednesday, but current yield levels have been limiting their participation. Flows were directed both up and down the coupon stack as changes in the yield curve shape influenced direction.
Technicals remain supportive for the sector with originator selling averaging $1 billion per day or less. Supply lately has been focused in 5.5% and 6% coupons.