Can the “TBA” Market Save MBS Trading?

Much discussion in recent weeks about the importance of the “TBA Market” to a healthy secondary market for mortgage-backed securities.

The TBA (“to be announced”) market, essentially, allows buyers and sellers to set pricing, maturity, coupon, principal, etc without actually specifying the individual securities that will be delivered to a buyer on the settlement date.  It provides a tremendous level of liquidity to this historically very active marketplace.

With the possible demise of the GSE’s on the horizon, the cultivation of a healthy TBA market for the non-agency or private mortgage-backed bond markets will likely be essential.

Earlier this month, the National Housing Conference, a gathering of  the US mortgage industry’s most important movers and shakers was convened in Washington, D.C. and the TBA market was a hot topic.  There seems to be a near complete consensus among bankers, investors and even government officials that the TBA market needs to be protected.

Similarly, it would appear that TBA will be a central topic at the American Securitization Forum’s Annual Conference Las Vegas next January. 

We would prefer that the long-term US strategy include the GSE’s in their historic (if more closely regulated) position as the “lead market-maker” for the US mortgage markets.  However, we also acknowledge that the political winds remain strongly in the face of such a development.  The TBA market may represent more than just a hedge to ensure that the US mortgage market returns to a more historically attractive level of liquidity.  Without it, any hope for a sustainable long-term recovery of the structured finance markets is probably dim.

About markferraris
Managing Principal Orchard Street Partners LLC

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