TBA Trading and Liquidity in the Agency MBS Market

18 Pages Posted: 12 Sep 2013

See all articles by James I. Vickery

James I. Vickery

Federal Reserve Bank of New York

Joshua Wright

Federal Reserve Banks - Federal Reserve Bank of New York

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2013

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.

Keywords: mortgage-backed securities, adverse selection, GSEs, liquidity

JEL Classification: G12, G19, G21

Suggested Citation

Vickery, James Ian and Wright, Joshua, TBA Trading and Liquidity in the Agency MBS Market (May 1, 2013). Economic Policy Review, Vol. 19, No. 1, 2013, Available at SSRN: https://ssrn.com/abstract=2324222 or http://dx.doi.org/10.2139/ssrn.2324222

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

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
283
Abstract Views
2,833
rank
45,980
PlumX Metrics