The steadily increasing issuance of hybrid ARMs relative to fixed-rate mortgages is negatively affecting the ARM product.

"While technicals in the fixed-rate market remain excellent, with diminishing net supply and moribund swaption premiums, the ARMs market has been in near free-fall, suffering from high net supply and rising cap volatilities," JPMorgan Securities said in a recent report. These trends are expected to continue with net fixed-rate supply in May expected to decline while ARM supply will probably remain robust with rising securitization rates, analysts added.

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