The week started off slow with limited buying interest; it picked up, however, as the week progressed and supply stalled. Originator selling averaged about $750 million per day, mostly in 30-year 5.5% coupons. Buyers included insurance companies, servicers and especially banks.

Spreads over the Wednesday-to-Wednesday period tightened notably, especially in the higher coupons. Meanwhile, 30-year Fannie Mae 5s strengthened five basis points; 5.5s and 6s were better by eight basis points; and 6.5s firmed 13 basis points. Also, 6.5s have become quite rich in recent weeks. In fact, UBS recommends investors sell Fannie Mae or Ginnie Mae 6.5s and buy a combination of Fannie Mae 5.5s and Trust or structured IOs. In Dwarfs, 4s and 4.5s moved in six and nine basis points, respectively, while 5s and 5.5s were 12 and 16 basis points tighter.

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