Dollar Roll Primer

This commentary will serve as an introduction to the dollar roll market.  We start by defining the market’s protocols and terms, and address how lenders and investors each utilize the market.  We then discuss the economics of roll transactions, with a detailed analysis of how values are calculated and how to use the roll calculator in Thomson Reuters Eikon.  We also address how carry on MBS is calculated, as certain types of transactions are valued in a similar fashion to rolls.  We conclude with a discussion of the technical factors impacting roll levels.


Measuring Prepayment Speeds: CPR, PSA, SMM

In this piece, we will seek to describe the nature of the calculations and avoid wading into the actual mathematics.  We will outline what factors are included and excluded from the calculations, and address the different conventions for quoting speeds.  We’ll close with a quick discussion of the relationships between historical and projected prepayment speeds, and address the different options traders can utilize to calculate yields, performance, and risks.


Specified Pool Primer

A segment of the MBS market called “specified pool trading” attempts to take advantage of refinancing inefficiencies by identifying pools or categories of loans that are expected to experience either lower refinancing rates (i.e., slower prepayment speeds) or, depending on market prices, faster turnover speeds. In many cases, lenders are rewarded for segregating and pooling loans with attractive prepayment characteristics separately, with investors willing to buy such pools at a premium or “pay-up” to TBA prices.