Mortgages are off to a strong start in September. According to Lehman Brothers, the MBS Index has outperformed versus Treasurys by 11 basis points month to date through Sept.6, and brings year-to-date gains to 80 basis points over.

Specifically, mortgages benefited last week from tightening in swap spreads related to a heavy corporate and CMBS calendar expected for September. Other factors supportive for mortgages were continued low volatility, the modest sell-off in Treasurys that moved the 10-year Treasury from 4.73% as of the close of Sept.1 to over 4.80% in early trading on Thursday, and looming paydowns that would be out on Friday. Throughout the week, flows were two-way and mostly up in coupon with widespread domestic participation, particularly from hedge funds and servicers. Asia, meanwhile, remained quiet despite the cheapening in prices. Originator selling also was uneventful last week.

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