Record MBS Trading Volume in 2012

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Record trading volume for mortgage-backed securities last year was driven by the low-rate environment. A potential expansion of the government-supported refinance program could impact this year’s volume.

The trading of to-be-announced MBS on the Tradeweb platform was up 20 percent during 2012, according to data reported Thursday. Volume worked out to an all-time high.

Fueling the robust activity were yield-hungry investors trying to overcome the low-rate environment. Strong federal support of the housing market and the Federal Reserve’s quantitative easing strategy also contributed to the increase.

The New York-based company, which says that $500 trillion in various securities have been traded through its platforms during the past decade, said to-be-announced MBS trading volume totaled $24 trillion last year.

“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 Dec. 31,” the report stated. “Intra-2012 price lows for Fannie 3s reached 98 – 10 on March 19, and climbed to a high of 106 – 00+ on Sept. 26.”

Tradeweb, which established its MBS marketplace in 2001, said that volume using its “Round Robin” functionality exceeded $2 trillion. Investors used this function to avoid trade fails during QE3.

The implementation of a new secondary market structure for mortgages this year is expected to be complete 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,” Tradeweb said. “Keep close watch on announcements from the Federal Housing Finance Agency for updates throughout the year.”

A prominent topic this year is expected to be margin requirements for to-be-announced MBS.

The report indicated that while refinance volume through the Home Affordable Refinance Program is dissipating, an upcoming proposal to implement HARP 3.0 would be the first program to target mortgages that aren’t owned or guaranteed by Fannie Mae or Freddie Mac.

Mortgage Expert

Mortgage Daily Staff



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