There was considerable talk last week about the presence of the GSEs on the bid for 10-year notes. The agencies have been a conspicuous participant in buying mortgages of late after being relatively absent since the first quarter as they attempt to reinvest the paydown proceeds of the mortgages that they hold. Buying in MBS both periods prompted a hedge in Treasurys, made all the more prevalent with the latest rally.

Fannie Mae reported last week that their mortgage portfolio grew at a 4.6% annual rate in July. This compares to just over an average 16.4% in the first quarter and 5% for the second quarter. At the beginning of the year, Fannie estimated a 16% growth target, following a comparable increase in 2001, but the spread tightening that occurred between MBS and agency debentures limited the amount of buying done by the GSE. Fannie has since re-estimated growth this year in the mid-to-low teens.

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