2012 Marks Record Year in TBA-MBS Trading
Trading of to-be-announced mortgage-backed-securities (TBA-MBS) exceeded a record $24 trillion in 2012 on Tradeweb, a 20% year-over year increase. Key factors attributing to the increased volumes included investors’ continued hunt for yield in a low interest rate environment, a strong federal support of the housing market and the continuation of quantitative easing programs.
Price fluctuations in 2012 proved to be fairly volatile as well, with Fannie Mae 3.0s closing the year over four points higher from a bid price of 100 – 09 to 104 – 26+ on December 31. Intra-2012 price lows for Fannie 3s reached 98 – 10 on March 19, and climbed to a high of 106 – 00+ on September 26. Additionally, as investors sought to avoid trade fails during QE3, use of Tradeweb’s innovative Round Robin functionality exceeded $2 trillion in volume.
What to Watch for:
2013 represents the beginning of the implementation of a new secondary market structure for mortgages, targeting completion in 2017. It remains unclear whether this includes a generic TBA-MBS, but several indicators show that the marketplace will not fall under full governmental control. Keep close watch on announcements from the Federal Housing Finance Agency for updates throughout the year.
Margin requirements for TBA-MBS will also be a prominent topic in 2013. The Treasury Market Practices Group (TMPG) has asked for systems to be in place by early June. The recommendation also calls for written master agreements (MSFTA) dictating terms of the margin call – a key issue for investors to consider ahead of impending requirements.
Finally, though refinancing from HARP 2.0 appears to have dissipated, as evidenced by recent pre-payments, a proposal for implementing HARP 3.0 is on the horizon, representing the first program to target non-GSE mortgages.
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