Mortgage Dollar Roll

Zhaogang Song

Federal Reserve Board

Haoxiang Zhu

Massachusetts Institute of Technology (MIT) - Sloan School of Management

March 13, 2014

Mortgage dollar roll is the most important trading strategy for investors to finance their positions in agency mortgage-backed securities (MBS). The "specialness" of dollar roll is the extent to which the implied dollar roll financing rates fall below prevailing market interest rates. This paper provides the first analysis of dollar roll specialness in agency MBS markets, using a large panel dataset from July 1998 to July 2013. We show that the dollar roll specialness increases in prepayment risks (proxied by primary mortgage rates and "burn-out effect") and decreases in MBS supply. The expected returns of agency MBS decrease in their dollar roll specialness. We find evidence that the Federal Reserve's large-scale asset purchase (LSAP) increases dollar roll specialness by pushing down mortgage rates, but not by reducing the effective supply of MBS.

Number of Pages in PDF File: 53

Keywords: MBS, Mortgage Dollar Roll, TBA, Specialness, LSAP, Repo

JEL Classification: G12, G18, G21, E58

working papers series

Download This Paper

Date posted: February 27, 2014 ; Last revised: March 19, 2014

Suggested Citation

Song, Zhaogang and Zhu, Haoxiang, Mortgage Dollar Roll (March 13, 2014). Available at SSRN: http://ssrn.com/abstract=2401319 or http://dx.doi.org/10.2139/ssrn.2401319

Contact Information

Zhaogang Song
Federal Reserve Board ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States
Haoxiang Zhu (Contact Author)
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
Cambridge, MA 02142-1347
United States
HOME PAGE: http://www.mit.edu/~zhuh
Feedback to SSRN

Paper statistics
Abstract Views: 355
Downloads: 80
Download Rank: 181,190

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.250 seconds