As the yield on the 30-year Treasury bond surpassed the 6% mark last week, mortgage market sources reported a significant sell-off of MBS paper and growing concerns about liquidity.

"Across all our desks we have had complaints about liquidity in the ability to both buy and sell bonds," said Michael Youngblood, managing director of mortgage research for Banc of America Securities. "[But] it is not as if the market is locked up with interest rate fears and all participants are moving in one direction."

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