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TBA trading and liquidity in the agency MBS market

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  • James Vickery
  • Joshua Wright

Abstract

Most mortgages in the United States are securitized through the agency mortgage-backed-securities (MBS) market. These securities are generally traded on a “to-be-announced,” or TBA, basis. This trading convention significantly improves agency MBS liquidity, leading to lower borrowing costs for households. Evaluation of potential reforms to the U.S. housing finance system should take into account the effects of those reforms on the operation of the TBA market.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 468.

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Date of creation: 2010
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Handle: RePEc:fip:fednsr:468
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Keywords: Mortgages ; Mortgage-backed securities ; Liquidity (Economics) ; Housing - Finance ; Financial market regulatory reform;

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  1. 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.
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  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. Michael J. Fleming, 2002. "Are larger Treasury issues more liquid? Evidence from bill reopenings," Proceedings, Federal Reserve Bank of Cleveland, pages 707-739.
  6. 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.
  7. Michael J. Fleming, 2001. "Measuring treasury market liquidity," Staff Reports 133, Federal Reserve Bank of New York.
  8. 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.
  9. 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.
  10. 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.
  11. 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 561-74, September.
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  13. 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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Cited by:

  1. 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).
  2. Andreas Fuster & James Vickery, 2013. "Securitization and the fixed-rate mortgage," Staff Reports 594, Federal Reserve Bank of New York.
  3. 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.
  4. Frame, W. Scott & Fuster, Andreas & Tracy, Joseph & Vickery, James, 2015. "The rescue of Fannie Mae and Freddie Mac," Staff Reports 719, Federal Reserve Bank of New York.
  5. 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.
  6. W. Scott Frame & Larry D. Wall & Lawrence J. White, 2012. "The Devil's in the Tail: Residential Mortgage Finance and the U.S. Treasury," Working Papers 12-12, New York University, Leonard N. Stern School of Business, Department of Economics.
  7. 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.
  8. Carlin, Bruce I. & Longstaff, Francis A. & Matoba, Kyle, 2014. "Disagreement and asset prices," Journal of Financial Economics, Elsevier, vol. 114(2), pages 226-238.
  9. 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.
  10. Boyarchenko, Nina & Fuster, Andreas & Lucca, David O., 2014. "Understanding mortgage spreads," Staff Reports 674, Federal Reserve Bank of New York.
  11. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2013. "The ins and outs of LSAPs," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City.
  12. Yiting Li & Guillaume Rocheteau & Pierre-Olivier Weill, 2011. "Liquidity and the Threat of Fraudulent Assets," NBER Working Papers 17500, National Bureau of Economic Research, Inc.
  13. 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.
  14. Bruce I. Carlin & Francis A. Longstaff & Kyle Matoba, 2012. "Disagreement and Asset Prices," NBER Working Papers 18619, National Bureau of Economic Research, Inc.
  15. 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.

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