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How TBA Pool Allocation Changes Near Mortgage Settlement

Article Quant Q&A · Author: Bard
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Summary

The document describes how agency mortgage-backed securities (MBS) TBA trading relates to the allocation of specific pools before settlement. Pools for a TBA trade are identified by the 48-hour day, set two business days before the settlement date. TBA pricing for that settlement month is rolled to the new front month by this deadline.

After the 48-hour day, trading tied to the original settlement date is most likely associated with a settlement fail. The discussion also clarifies that both TBAs and specified pools are types of MBS, though they are distinct forms of trading and delivery. It points readers toward industry materials for detail on TBA liquidity, specified pool trading, and settlement fails, but does not explain those mechanisms in depth or provide market data. The timing and terminology are specific to the described agency MBS settlement convention.

Key ideas

  • TBA pool allocations are identified no later than the 48-hour day before settlement.
  • TBA pricing rolls to the new front month around that allocation deadline.
  • Trading tied to the old settlement date afterward is likely related to a settlement fail.
  • TBAs and specified pools are both forms of mortgage-backed securities, with different trading conventions.

Tags

Fixed incomeUS marketsMarket microstructure
Full text
# Does TBA become MBS after pool is announced?


# Does TBA become MBS after pool is announced?












Is TBA still called TBA after the pool is announced? Can it be said that TBAs are still traded after the announcement or are all those trades effectively in MBS? I am looking to understand market for both instruments a bit better

## Answer by Sharad (score 5, accepted)

https://quant.stackexchange.com/a/76456

The pools to be delivered in a TBA trade are identified no later than 3pm two business days prior to the settlement date ("48-hour day"). Essentially, all TBA pricing is rolled from this settlement date to the new front month (settlement date) by 48-hour day. For a solid introduction to MBS TBA trading (and the closely-related Specified Pool Market), see Section 3 in TBA Trading and Liquidity in the Agency MBS Market.

To the extent that TBA trading for a specific settlement date does take place after its 48-hour day, it is most likely in the context of a "fail". This is a complex topic but see Understanding Settlement Fails in Agency MBS for an introduction.

Regarding nomenclature, both TBAs and Specified Pools are specific types of mortgage-backed securities (MBS), hopefully the first paper should clear up some of these distinctions.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.