The lack of supply in mortgages continues to push rich valuations to even richer levels. As the end of the year approaches, there is a precedent for spread widening, with investors propping up their balance sheets.

The week was characterized by continued buying support from a variety of investors, especially banks, but no supply. Mortgage bankers brought less than $1 billion per day last week. Buyer interest focused on the up-in-coupon trade, particularly 30-year 6s that offer the best carry. Other factors with a positive impact on mortgages last week: the Treasury Refunding, declining vols and the outlook for a stable rate environment.

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