Though a Fed rate cut is generally good for MBS because it leads to a steeper yield curve, last Wednesday's less-than-expected 25-basis-point ease - some market participants were anticipating a 50-basis-point cut - caused the curve to flatten, resulting in a relatively poor environment for mortgage-backeds later in the week.

"You saw a significant flattening, especially in fives and 10s," said David Montano, director of MBS research at Credit Suisse First Boston.

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