A deadly quiet mortgage market showed little activity last week, as traders and investors alike stared at blank screens, thinking of their upcoming Thanksgiving vacation.

"I'm bored to tears this week," one MBS investor said.

Still, the lack of liquidity and ongoing negative news in corporates helped to keep steady two-way flows in the sector during a normally quiet seasonal slowdown. As of press time last Tuesday, very little was expected for the remainder of the week, as last Wednesday was a half-day trading session, followed by a full close last Thursday.

With Treasurys firming last Tuesday on light volume influenced by some short covering, mortgages ended the day slightly underperforming hedge ratios.

Near close, 30s were trailing by 1.3 ticks, and 15s were off 0.6 ticks. Spreads remained one basis point wider on the day. The mortgage sector performed in line with swaps and agencies, and outperformed corporates, which were out another three to five basis points.

"The buyside is overweighted in mortgages, and the consensus is that when spreads tighten, mortgages will lead the way," said an MBS analyst.

Also last week, Freddie Mac announced its mortgage portfolio activity for October. The GSE reported mortgage securitization of $15.6 billion in October, down from September's level of $21.2 billion. New purchases were also lower at $18.7 billion, vs. $24.4 billion.

A few investors and analysts also mentioned that there was a minor debate going on last week regarding conventional 6.5s.

They were looking at brand new origination versus paper that is 18 to 20 months old, and the majority of them thought that the latter was a better choice.

"If you look at the weighted average coupon (WAC) on 6.5 paper, it is kind of wild," said one investor.

Pru CMBS Deal About to Price

As of press time last Tuesday night, the $244 million Prudential-Heritage CMBS deal had not priced yet, but was expected to price last Wednesday.

Salomon Smith Barney became the lead manager on the deal after Prudential announced that it had exited the mortgage market a few weeks ago.

Market sources say that it was a tough sale due to the anchor retail component of the transaction, and one source even mentioned that half the triple-B and half of the BBB-minus were never sold.

The source suggested "that the recent stock and bond market turbulence was causing CMBS investors to reject bonds backed by consumers spending or retail. Selling retail in this environment was definitely swimming upstream."

But an investor that bought the deal suggested it was a good opportunity, as after Christmas retail conditions will likely still look stable.

Also announced last week was a Deutsche Bank/Chase floating-rate deal in DB's COMM series, for $1.19 billion. The A-B deal contains 10 loans, six split into senior-junior interests and four whole loans. Six of the mortgages will have "C interests" that will be privately placed.

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