Subprime continued to weigh on the MBS market last week. Treasurys strengthened on "flight to quality" related to subprime as well as on weak housing news.

On the subprime front, Bear Stearns stock was hit early in the week on fears that the firm's $3.2 billion bailout of one of its subprime hedge funds might not be enough. Rumors were circulating on Tuesday regarding Countrywide Financial's subprime exposure, which also caused its stock to decline. Finally, ABS remittance reports showed that delinquencies on outstanding pools of subprime mortgages continued to rise. The market is starting to anticipate again that the Federal Reserve could cut rates at some point with the weakness in the housing market.

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