With mortgage-to-debt spreads less attractive lately, leading to the virtual disappearance of the GSE arbitrage in the 30-year sector, the GSEs' retained portfolio purchases are expected to remain light in the near term, analysts said.

Historically, the GSEs fund their mortgage purchases in their retained portfolios mainly through their debt. Such operation has traditionally been profitable for GSEs as a result of the attractive spread between mortgages and Agency debentures. However, because of the recent outperformance of mortgages, the sector has richened relative to Agency debentures, causing the spread between the two to tighten significantly.

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