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TBA trading and liquidity in the agency MBS market

  • James Vickery
  • Joshua Wright

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.

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File URL: http://www.newyorkfed.org/research/epr/2013/1212vick.pdf
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Article provided by Federal Reserve Bank of New York in its journal Economic Policy Review.

Volume (Year): (2013)
Issue (Month): May ()
Pages: 1-18

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Handle: RePEc:fip:fednep:y:2013:i:may:p:1-18:n:v.19no.1
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  1. Andreas Fuster & James Vickery, 2013. "Securitization and the fixed-rate mortgage," Staff Reports 594, Federal Reserve Bank of New York.
  2. Michael J. Fleming, 2002. "Are larger Treasury issues more liquid? Evidence from bill reopenings," Staff Reports 145, Federal Reserve Bank of New York.
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  9. Green, Richard K. & LaCour-Little, Michael, 1999. "Some Truths about Ostriches: Who Doesn't Prepay Their Mortgages and Why They Don't," Journal of Housing Economics, Elsevier, vol. 8(3), pages 233-248, September.
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