Investment Rating - The report maintains a constructive outlook on the mortgage basis and projects a reduction in private market supply, which is expected to be a tailwind for the sector [1][20]. Core Insights - The private market supply for 2025 is projected to be $394 billion, approximately $20 billion lower than previous estimates, which should benefit the sector [1][13]. - The net supply projection for 2025 has been reduced to $200 billion, with gross supply expected to be around $1.15 trillion [3][31]. - Short-term prepayment speeds are expected to decrease in May and June, with a potential increase in July [4][31]. - The production coupon OAS widened to 44 basis points, indicating a shift in market conditions [20]. Summary by Sections Supply Projections - The report revises the net supply projection for 2025 to $200 billion, down from $225 billion, with gross supply expected to be approximately $1.15 trillion [3][31]. - The private market supply is projected to be $394 billion for 2025, reflecting a decrease from previous estimates [1][13]. Prepayment and Speed Projections - Prepayment speeds for May are expected to decrease by 3% for conventional loans and by 5% for G2SF, with a projected decline of 4-5% for June [4][31]. - Preliminary projections indicate a potential increase in speeds by 3% in July [4][31]. Market Conditions - The production coupon OAS has widened to 44 basis points, which is above the fair value range of 25-35 basis points, suggesting a shift in investor sentiment [20]. - A significant portion of investors (approximately 70%) expect the production coupon basis to tighten by 5-10 basis points in the coming months [20]. Valuation Preferences - The report maintains a preference for 5.5 coupons, indicating a strategic focus on specific segments of the market [24][31].