Mortgages are off to a rough start in May primarily due to all the curve gyrations and yield backup. This was caused, in part, by Federal Reserve Chairman Ben Bernanke's comments to CNBC correspondent Maria Bartiromo at a White House Correspondents dinner, and in part by stronger-than-expected economic data. The Fed Chairman clarified that the markets had misinterpreted his remarks at his recent appearance before the U.S. Congress Joint Economic Committee.

Through the first three trading days of last week, Lehman Brothers' MBS Index recorded an excess return versus Treasurys of negative 11 basis points, nearly wiping out April's gains of 14 basis points. Flows throughout the week were fairly active, two-way, and directed up-in-coupon. While there was some servicer rebalancing, it continues to remain limited. The week also saw the absence of Asian support as that region was on holiday for Golden Week celebrations.

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