Supportive flows during the first part of last week helped mortgages recover from a negative start in February. According to Lehman Brothers, the month-to-date excess return versus Treasurys for the MBS Index was a positive three basis points as of Feb. 8.

One major contributing factor to mortgage performance was the lack of supply, which averaged less than $1 billion per day. There was also real and fast money taking advantage of the early month weakness on Feb. 6, while the following day brought additional buying interest from January paydowns that totaled $33 billion. While Asian investors were back from their week-long holiday, their participation was rather disappointing and was attributed to expectations of better yield opportunities following the refunding.

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