Last week, mortgages demonstrated their current predicament. Their rich levels limited them from participating in rallies and led to strong underperformance on market selloffs. The week saw an increase in originator selling to about $1.5 billion per day - mostly in 5% coupons. In addition, there was profit-taking noted, given the near historically tight level of spreads. At the same time, there was some support on month-end extension buying early in the week, and a pickup in bank buying - especially in 15-year paper. However, many investors were waiting for cheaper entry points and for the employment report to be released.

Over the Thursday-to-Thursday period, spreads on 30-year Fannie Mae 5s through 6s were flat to one basis point tighter, while Dwarf 4.5s and 5s were two and three basis points wider.

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