With the recent bull flattener trade, investors have become more concerned about reduced bank demand for mortgages because lower yields and the flatter curve will put pressure on net interest margins.

However, despite these concerns, market observers expect bank demand to remain robust in the near term because of several factors. For instance, in a recent report, Credit Suisse First Boston noted the trend of continuing weak Commercial and Industrial (C&I) loan demand from the business sector, citing data from the quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices published by the Federal Reserve.

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