TBA Trading and Security Issuance in the Agency MBS Market

80 Pages Posted: 21 Dec 2020 Last revised: 1 Jun 2022

See all articles by Yu An

Yu An

Johns Hopkins Carey Business School

Wei Li

Johns Hopkins University - Carey Business School

Zhaogang Song

Johns Hopkins University - Carey Business School

Date Written: June 1, 2022

Abstract

Agency MBS are traded via both specified pool (SP) contracts for individual securities and to-be-announced (TBA) contracts for a cohort of heterogeneous securities. We document three economic effects of this secondary-market structure on MBS issuers' security design strategies: (1) Low-value and high-value loans are securitized into separate groups of MBS sold in TBA and SP markets respectively; (2) issuers pool low-value loans together into TBA MBS, but separate high-value loans into different SP MBS; (3) larger issuers take more advantage of TBA trading when designing MBS. TBA-trading-induced strategic MBS design increases issuers' selling revenue by 36% of the SP transaction costs.

Keywords: Cohort, MBS, Security design, Specified pool, TBA.

JEL Classification: D4, G2

Suggested Citation

An, Yu and Li, Wei and Song, Zhaogang, TBA Trading and Security Issuance in the Agency MBS Market (June 1, 2022). Available at SSRN: https://ssrn.com/abstract=3674660 or http://dx.doi.org/10.2139/ssrn.3674660

Yu An

Johns Hopkins Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Wei Li

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Zhaogang Song (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

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