Mortgage-backed volume was running below normal in the first half of the week with flows relatively balanced. MBS spreads widened on Monday as Treasurys gave up more of their flight to quality premium. In general, overseas investors showed interest in 5.5%s and 6%s, while servicers moved into 5% coupons. Other investors such as money managers and hedge funds were better sellers. Supply was burdensome for the limited participation - totaling nearly $3 billion.

Spreads tightened on Tuesday and into Wednesday on a rather lackluster tone. Servicers and hedge funds were better buyers, particularly down in coupon, both outright and versus Treasurys and swaps, while money managers were better sellers following the recent strong gains in MBS. Supply was more manageable at just over $2 billion. Finally, performance in 15/30s, specified pools and GNMA/FNMA swaps was mixed.

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