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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (51)	6/16/2003 1:04:40 PM
From: russwinter	Respond to of 110194

Reuters US mortgage-backed securities narrow on light sales Monday June 16, 10:50 am ET NEW YORK, June 16 (Reuters) - U.S. mortgage-backed security prices were narrowly mixed on Monday but outperformed Treasuries after persistent demand was met with light selling from lenders. Spreads on the most liquid 30-year mortgage-backed securities narrowed about half a basis point in early trading, taking a pause after widening for much of last week. Despite the slight narrowing on Monday morning, mortgage-backed investors still have much to be concerned about, traders said. As mortgage rates hover near four-decade lows, refinancing continues at a fast pace, cutting into the return on -- and demand for -- mortgage-backeds. Mortgage-backed demand has also been hurt by a narrowing of the steep gap between short- and long-term rates, a flattening yield curve, which cuts profits for investors who borrow at short-term rates in order to buy mortgage securities. The yield curve flattened further on Monday after an upbeat survey of manufacturing activity in the New York area led some investors to position for the Federal Reserve to cut rates by 25 basis points next week, rather than the 50 basis points some analysts have forecast. High levels of refinancing and the flattening yield curve have plagued the mortgage-backed market for weeks, and last week Freddie Mac (NYSE:FRE - News) dealt the market another blow when it announced that three senior officers left the company. Announcements of government probes followed and investors grew increasingly concerned about more onerous regulation for government-sponsored-enterprises like Freddie Mac. With these woes, mortgage-backeds have turned in a lackluster performance so far this year, according to Merrill Lynch indexes. As of Friday, the total return for the Merrill Lynch Mortgage Master index for the year was 1.886 percent, far below the Corporate Master index's 9.725 percent. A few banks shrugged off concerns about mortgage bonds and bought them on Monday. That demand was met with light selling from mortgage lenders, on the order of $400 million, a trader said. Thirty-year Fannie Mae mortgage-backeds bearing 5 percent coupons fell 1/32 to 102-20/32, for a bond equivalent yield of 3.719 percent.