Mortgages benefited last week from very light supply - less than $1 billion per day on average - steady investor buying and favorable comments from Fed Chairman Alan Greenspan. Investor support came from a variety of account types including money managers, hedge funds, insurance companies and, to a lesser extent, banks. The rich levels also inspired some profit taking early in the week to the tune of more than $1.5 billion. Other activity included a strong bid for 30-year 5s and 6s on roll-related activity. Last week was settlement for 30-year conventionals, and these coupons traded through fail.
The market surged on Wednesday when Greenspan began his semiannual testimony to the House Financial Services Committee. He said the Fed could be patient about raising interest rates. This confirmed that the range-bound environment, carry trade and continuing steep yield curve would continue for a while - all favorable for mortgages.