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The difference in price between the front month and back month in a mortgage-backed security (抵押贷款支持债券) dollar roll trade. A dollar roll is a popular type of trade in the 抵押贷款支持债券 pass-through TBA market. According to forward securities pricing theory, the front month price should be higher than the back month price. The drop is a function of current short-term interest rates, ppayment estimates, and the supply and demand for pass-throughs in the current delivery or front month.
|||A pass-through TBA security is said to be trading through fail when the drop is larger than what it would cost a mortgage originator, investor or securities dealer to fail to deliver into a TBA contract for an entire month. When there is a shortage of supply or extreme demand for a TBA security in the current delivery month, the drop can increase to fail or larger, reflecting the fact that securities dealers would rather roll a trade out an additional month at a large drop or fail to deliver that security for an entire month than make delivery in the current month. |
