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TBA trading and security issuance in the agency MBS market

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  • Yu An
  • Wei Li
  • Zhaogang Song

Abstract

In addition to the standard individual‐security‐based specified pool (SP) contract, agency mortgage‐backed securities (MBS) are actively traded via the to‐be‐announced (TBA) contract that sets a uniform price for a cohort of heterogeneous securities. We provide empirical support for the economic impact of TBA trading on MBS issuers' security design: issuers pick low‐quality loans and pool them together into few TBA MBS. We then conduct a quantitative analysis and show that TBA‐trading‐induced strategic MBS design increases issuers' selling revenue by about 55% of the SP transaction costs. Finally, we show that smaller issuers are less able to package low‐quality loans separately from high‐quality ones and hence benefit less from TBA trading.

Suggested Citation

  • Yu An & Wei Li & Zhaogang Song, 2025. "TBA trading and security issuance in the agency MBS market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 53(3), pages 607-642, May.
    • Handle: RePEc:bla:reesec:v:53:y:2025:i:3:p:607-642
    DOI: 10.1111/1540-6229.12528
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