Abstract

http://ssrn.com/abstract=1661895
 
 

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TBA Trading and Liquidity in the Agency MBS Market


James I. Vickery


Federal Reserve Bank of New York

Joshua Wright


Federal Reserve Banks - Federal Reserve Bank of New York

August 1, 2010

Economic Policy Review, Forthcoming
FRB of New York Staff Report No. 468

Abstract:     
Mortgage-backed securities in the United States are generally traded on a “to-be-announced,” or TBA, basis. The key feature of a TBA trade is that the identity of the securities to be delivered to the buyer is not specified exactly at the time of the trade, facilitating a liquid forward market. This article describes the main features of the TBA market. It also presents evidence on the liquidity of this market during the financial crisis period. Using variation in TBA eligibility rules, the authors’ estimates suggest that the liquidity benefits associated with the TBA market are of the order of 10 to 25 basis points during 2009 and 2010, and magnified during periods of market stress. The estimates further suggest that the presence of a government credit guarantee alone does not appear to be sufficient explanation for the liquidity of agency MBS.

Number of Pages in PDF File: 18

Keywords: mortgage-backed-securities, TBA trading, liquidity, adverse selection

JEL Classification: G21, G12, G19

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Date posted: August 21, 2010 ; Last revised: January 22, 2013

Suggested Citation

Vickery, James I. and Wright, Joshua, TBA Trading and Liquidity in the Agency MBS Market (August 1, 2010). Economic Policy Review, Forthcoming; FRB of New York Staff Report No. 468. Available at SSRN: http://ssrn.com/abstract=1661895 or http://dx.doi.org/10.2139/ssrn.1661895

Contact Information

James Ian Vickery (Contact Author)
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
Joshua Wright
Federal Reserve Banks - Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
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