Mortgages rebounded last week following the weaker than expected non-farm payrolls report. Real money buying emerged, along with continued support from overseas banks, to propel prices higher and spreads tighter, particularly lower coupons. Lower coupons also benefited from the November prepayment reports, which showed continued fast speeds for discount coupons. Higher coupons, meanwhile, were hit following the report as speeds showed slight gains versus expected declines.
Buying in all MBS began to falter on Wednesday, however, when Treasurys rallied even further as a result of energy and dollar action, corporate and CMBS hedge unwinds, and a favorable five-year Treasury auction. Hedge funds and fast money started taking profits, which continued into Thursday's trading session.