backed securities in the last two weeks as volatility in the fixed-income markets settled down, inducing them to jump back in to spread products. "Spreads have widened enough, and there seems to be some stability to the market," said William F. Quinn, a director at Smith Breeden Associates Inc. of Overland Park, Kan. Mortgage securities performed well throughout last week, and investors "who have been on the sidelines have stepped in," Mr. Quinn said. He said these investors are following the example of banks and insurance companies, which have resumed investing in commercial and residential mortgage-backed securities. Swap spreads-an indication of long-term wholesale borrowing rates-also made mortgages look more attractive to investors last week. "Any kind of spread product has had a great week," Mr. Quinn said. "Investor demand has really changed," said Allen R. Siegel, managing director for sales and trading at Blaylock & Partners in New York. "It has gone from no appetite at all to basically 'show me what you have.'" Buyers now abound for every type of mortgage product, he said, especially 15- and 30-year pass-through securities andcollateralized mortgage obligations. Meanwhile, Wall Street dealers do not have as much inventory of mortgage securities because of volatility earlier this fall and because the end of the year is approaching, Mr. Quinn said. Last month when mortgage spreads widened, demand for mortgage-backed securities was sparse, except for buying by Fannie Mae and Freddie Mac. Bank portfolio managers and money managers stayed clear of mortgages, but now these investors are "more prone to put cash to work in our sector," said a trader who is seeing "broad-based buying across the board." Last month also saw large volumes of origination but not a lot of purchase activity to offset it. For the first time since September, when spreads widened significantly, there is a "good underlying bid for mortgages," the trader said. u Asian investors, who have been big buyers of noncallable agency debt, are also now turning their attention to the euro. "There's a lot more Asian interest in euro-denominated product," said William T. Lloyd, director and head of market strategy and credit research for Barclays Capital. Previously, the Japanese were buying U.S.-dollar-denominated products, but now they have broadened that focus to the European market. A supply of different government bonds denominated in the same currency would create more liquidity in Europe, said Robert A. Brusca, chief economist for Nikko International. "For investors, this is going to be a real, real change," he said. Investors seeking euros as a reserve asset will have a tremendous choice among government securities, he added. Mr. Brusca said that in the short term he does not expect to see investors selling dollar paper to buy euro paper. But he said there is a "growing flow of interest in euro paper."

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