Mortgages experienced active two-way flows last week, as the start of the week saw better buying on the Treasury sell-off. As has been stated many times, mortgage players have plenty of cash currently, and tend to be strong buyers when the market sells off. Particularly active were insurance companies, hedge funds, and overseas banks. Month end buyers were not particularly noticeable as the MBS Index lengthened just 0.06 years on Dec. 1.
As the week progressed, originator selling picked up with Tuesday through Thursday averaging $2 billion per day. Servicers and pension funds added to the selling fray. The continued sell-off in Treasurys is starting to create some uncertainty in the market regarding extension risk and about where to hedge.