IDEAS home Printed from https://ideas.repec.org/a/fip/fednep/y2013imayp1-18nv.19no.1.html
   My bibliography  Save this article

TBA trading and liquidity in the agency MBS market

Author

Listed:
  • James Vickery
  • Joshua Wright

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.

Suggested Citation

  • James Vickery & Joshua Wright, 2013. "TBA trading and liquidity in the agency MBS market," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 1-18.
  • Handle: RePEc:fip:fednep:y:2013:i:may:p:1-18:n:v.19no.1
    as

    Download full text from publisher

    File URL: https://www.newyorkfed.org/medialibrary/media/research/epr/2013/1212vick.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Fleming, Michael J, 2002. "Are Larger Treasury Issues More Liquid? Evidence from Bill Reopenings," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(3), pages 707-735, August.
    2. Michael J. Fleming, 2003. "Measuring treasury market liquidity," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 83-108.
    3. Andreas Fuster & James Vickery, 2015. "Securitization and the Fixed-Rate Mortgage," Review of Financial Studies, Society for Financial Studies, vol. 28(1), pages 176-211.
    4. Chris Downing & Dwight Jaffee, 2009. "Is the Market for Mortgage-Backed Securities a Market for Lemons?," Review of Financial Studies, Society for Financial Studies, vol. 22(7), pages 2257-2294, July.
    5. Alessandro Beber & Michael W. Brandt & Kenneth A. Kavajecz, 2009. "Flight-to-Quality or Flight-to-Liquidity? Evidence from the Euro-Area Bond Market," Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 925-957, March.
    6. Toni Dechario & Patricia C. Mosser & Joseph Tracy & James Vickery & Joshua Wright, 2010. "A private lender cooperative model for residential mortgage finance," Staff Reports 466, Federal Reserve Bank of New York.
    7. Joseph E. Gagnon & Matthew Raskin & Julie Remache & Brian P. Sack, 2011. "Large-scale asset purchases by the Federal Reserve: did they work?," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 41-59.
    8. McKenzie, Joseph A, 2002. "A Reconsideration of the Jumbo/Non-jumbo Mortgage Rate Differential," The Journal of Real Estate Finance and Economics, Springer, vol. 25(2-3), pages 197-213, Sept.-Dec.
    9. Hirshleifer, Jack, 1971. "The Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, American Economic Association, vol. 61(4), pages 561-574, September.
    10. French, Kenneth R & McCormick, Robert E, 1984. "Sealed Bids, Sunk Costs, and the Process of Competition," The Journal of Business, University of Chicago Press, vol. 57(4), pages 417-441, October.
    11. 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.
    12. Brent W. Ambrose & Michael LaCour-Little & Anthony B. Sanders, 2004. "The Effect of Conforming Loan Status on Mortgage Yield Spreads: A Loan Level Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 32(4), pages 541-569, December.
    13. Wayne Passmore & Shane M. Sherlund & Gillian Burgess, 2005. "The Effect of Housing Government-Sponsored Enterprises on Mortgage Rates," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 33(3), pages 427-463, September.
    14. Johnston, Elizabeth Tashjian & McConnell, John J, 1989. "Requiem for a Market: An Analysis of the Rise and Fall of a Financial Futures Contract," Review of Financial Studies, Society for Financial Studies, vol. 2(1), pages 1-23.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Andreas Fuster & Stephanie H. Lo & Paul S. Willen, 2017. "The Time-Varying Price of Financial Intermediation in the Mortgage Market," NBER Working Papers 23706, National Bureau of Economic Research, Inc.
    2. Garbade, Kenneth D. & Keane, Frank M., 2017. "The Treasury Market Practices Group: creation and early initiatives," Staff Reports 822, Federal Reserve Bank of New York.
    3. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2013. "The ins and outs of LSAPs," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City.
    4. Andreas Fuster & James Vickery, 2015. "Securitization and the Fixed-Rate Mortgage," Review of Financial Studies, Society for Financial Studies, vol. 28(1), pages 176-211.
    5. W. Scott Frame & Andreas Fuster & Joseph Tracy & James Vickery, 2015. "The Rescue of Fannie Mae and Freddie Mac," Journal of Economic Perspectives, American Economic Association, vol. 29(2), pages 25-52, Spring.
    6. Marco Di Maggio & Amir Kermani & Christopher Palmer, 2016. "How Quantitative Easing Works: Evidence on the Refinancing Channel," NBER Working Papers 22638, National Bureau of Economic Research, Inc.
    7. W. Scott Frame & Larry D. Wall & Lawrence J. White, 2012. "The devil's in the tail: residential mortgage finance and the U.S. Treasury," FRB Atlanta Working Paper 2012-12, Federal Reserve Bank of Atlanta.
    8. Yiting Li & Guillaume Rocheteau & Pierre-Olivier Weill, 2012. "Liquidity and the Threat of Fraudulent Assets," Journal of Political Economy, University of Chicago Press, vol. 120(5), pages 000.
    9. Cruz, Prince Christian & Gao, Yuning & Song, Lei Lei, 2014. "The People’s Republic of China’s Financial Markets: Are They Deep and Liquid Enough for Renminbi Internationalization?," ADBI Working Papers 477, Asian Development Bank Institute.
    10. Carlin, Bruce I. & Longstaff, Francis A. & Matoba, Kyle, 2014. "Disagreement and asset prices," Journal of Financial Economics, Elsevier, vol. 114(2), pages 226-238.
    11. Pellerin, Sabrina & Sabol, Steven & Walter, John R., 2013. "MBS Real Estate Investment Trusts: A Primer," Economic Quarterly, Federal Reserve Bank of Richmond, issue 3Q, pages 193-227.
    12. Fuster, Andreas & Goodman, Laurie & Lucca, David O. & Madar, Laurel & Molloy, Linsey & Willen, Paul S., 2013. "The rising gap between primary and secondary mortgage rates," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 17-39.
    13. Aytek Malkhozov & Philippe Mueller & Andrea Vedolin & Gyuri Venter, 2016. "Mortgage Risk and the Yield Curve," Review of Financial Studies, Society for Financial Studies, vol. 29(5), pages 1220-1253.
    14. Friewald, Nils & Jankowitsch, Rainer & Subrahmanyam, Marti G., 2014. "To disclose or not to disclose: Transparency and liquidity in the structured product market," CFS Working Paper Series 461, Center for Financial Studies (CFS).
    15. Pelizzon, Loriana & Subrahmanyam, Marti G. & Tomio, Davide & Uno, Jun, 2016. "Sovereign credit risk, liquidity, and European Central Bank intervention: Deus ex machina?," Journal of Financial Economics, Elsevier, vol. 122(1), pages 86-115.
    16. Bruce I. Carlin & Francis A. Longstaff & Kyle Matoba, 2012. "Disagreement and Asset Prices," NBER Working Papers 18619, National Bureau of Economic Research, Inc.
    17. Boyarchenko, Nina & Fuster, Andreas & Lucca, David O., 2014. "Understanding mortgage spreads," Staff Reports 674, Federal Reserve Bank of New York, revised 01 Apr 2017.
    18. Peter Diep & Andrea L. Eisfeldt & Scott Richardson, 2016. "Prepayment Risk and Expected MBS Returns," NBER Working Papers 22851, National Bureau of Economic Research, Inc.
    19. Monnet, Cyril & Quintin, Erwan, 2017. "Limited disclosure and hidden orders in asset markets," Journal of Financial Economics, Elsevier, vol. 123(3), pages 602-616.
    20. Pelizzon, Loriana & Subrahmanyam, Marti G. & Tomio, Davide & Uno, Jun, 2015. "Sovereign credit risk, liquidity, and ECB intervention: Deus ex machina?," SAFE Working Paper Series 95, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    21. Swagel Phillip L., 2012. "The Future of U.S. Housing Finance Reform," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(3), pages 1-32, October.
    22. Bhat, Gauri & Ryan, Stephen G., 2015. "The impact of risk modeling on the market perception of banks’ estimated fair value gains and losses for financial instruments," Accounting, Organizations and Society, Elsevier, vol. 46(C), pages 81-95.
    23. Patricia C. Mosser & Joseph Tracy & Joshua Wright, 2013. "The capital structure and governance of a mortgage securitization utility," Staff Reports 644, Federal Reserve Bank of New York.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fednep:y:2013:i:may:p:1-18:n:v.19no.1. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Farber). General contact details of provider: http://edirc.repec.org/data/frbnyus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.