Mortgage flows in the early part of the week were below average and mixed. The rally in Treasurys last Monday, to even lower yields following the previous Friday's shocking employment report, brought additional convexity buying from servicers. Buying support also came from real money. Last Tuesday's selloff moved the convexity bid to the sidelines and generated better selling as investors again focused on various risks. This included news that Countrywide Financial was seeking another capital infusion. Uncertainty about Federal Reserve action on Sept. 18 added to general nervousness in the market. Further adding to mortgage woes were poor dollar rolls on the high funding costs. As far as overseas investor participation was concerned, it remained lackluster into midweek. Originator selling was also light, with roughly a $1 billion per day average.

Month-to-date, mortgages are outperforming Treasurys and competing sectors. The MBS Index is up 17 basis points through Sept. 11 compared with negative 16 basis points for ABS, negative four basis points for CMBS and negative 51 basis points for corporates, according to Lehman Brothers.

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