We examine the economic mechanisms that limited arbitrage between the cash and forward markets of agency MBS, and whether asset purchases of the Federal Reserve (Fed) alleviated price dislocations. We find that the cash-forward basis, or the price difference between the cash and forward markets...

In March 2020, massive customer selling of U.S. Treasury securities and agency mortgage-backed securities (MBS) triggered by the COVID-19 pandemic overwhelmed dealers’ capacity to intermediate trades, contributing to a marked deterioration of market functioning. The Federal Reserve promptly...

Agency mortgage-backed securities (MBS) issued by Fannie Mae and Freddie Mac have historically traded in separate forward markets. We study the consequences of this fragmentation, showing that market liquidity endogenously concentrated in Fannie Mae MBS, leading to higher issuance and trading...

Agency MBSs with diverse characteristics are traded in parallel through individualized specified pool (SP) contracts and standardized to-be-announced (TBA) contracts. This parallel trading environment generates distinctive effects on MBS pricing and trading: (1) Although cheapest-to-deliver...