The unchanged Federal Open Market Committee stance and the entry of Hurricane Rita into the picture made last week interesting for the MBS market, particularly with long rates rallying strongly and the curve flattening significantly. Ahead of and following the rate hike, mortgages experienced good two-way flows with better buying in the basis. Both real and fast money covered shorts and overseas buyers took advantage of the higher yields.
By midweek, however, mortgages began to feel the effects of the bull flattening. Wednesday saw a rather lackluster session with primarily fast money and servicers in the picture. In early trading Thursday, there was better selling taking place from both real and fast money as well as servicers, pressuring spreads moderately wider. Meanwhile, originator selling returned to its average $1 billion per day level.