Agency MBS Trading & Repo Financing
TBA Mortgage Dollar Roll Drop & Specialness Formula
Calculate Agency TBA Dollar Roll Price Drop (P_front - P_back), Breakeven Carry Drop, Net Roll Advantage Points, and Implied Dollar-Roll Financing Rate ("Trading Special").
Spot when an Agency TBA mortgage dollar roll trades "on special" below repo!
In the $250B+/day Agency To-Be-Announced (TBA) mortgage market, a Dollar Roll simultaneously sells a front-month TBA contract at P_front (investing the cash at 30-day money-market repo r_repo) and buys an identical coupon back-month TBA 30 days later at lower price P_back, forfeiting one month of MBS coupon + principal carry! Defining Price Drop = P_front - P_back and 30-day Cash Reinvestment Income = P_front * r_repo * (30 / 360), the Breakeven Drop where rolling equals holding is Foregone_Carry - Reinvestment_Income! Whenever street dealers scramble to cover short TBA deliveries (or Federal Reserve / bank portfolio demand squeezes front-month supply), Actual Drop exceeds Breakeven Drop—pushing the Implied Roll Financing Rate ((Foregone_Carry - Actual_Drop) / P_front) * (360 / 30) BELOW general-collateral repo ("rolling special")!
Verify on Front_TBA_Price = 100.00 pts (B2), Back_TBA_Price = 99.75 pts (B3 -> Actual Roll Drop = 0.2500 pts = 8/32nds in E2), Monthly_Foregone_Carry = 0.50 pts (6.0% coupon / 12, B4), and Market_GC_Repo_APR = 0.048 (4.80% ACT/360 -> 0.40 pts reinvestment income over 30 days, B5): Breakeven Drop is 0.50 - 0.40 = 0.1000 pts (E3); Roll Specialness Pickup is 0.25 - 0.10 = +0.1500 pts per $100 par (+$1,500 per $1M lot, E4); and Implied Roll Financing Rate is ((0.50 - 0.25) / 100) * 12 = 0.0300 (3.00% APR—180 bps cheaper than 4.80% GC repo in E5)!
| TBA Dollar Roll Metric (Front=100.00, Back=99.75, Carry=0.50, GC Repo=4.80%) | Formula | Verified Output |
|---|---|---|
| Actual TBA Price Drop (pts) | P_front - P_back | 0.2500 pts (8/32nds) |
| Breakeven Carry Drop (pts) | Foregone_Carry - P_front*r_repo*(30/360) | 0.1000 pts |
| Net Roll Advantage (pts) | Actual_Drop - Breakeven_Drop | +0.1500 pts (-0.0500 @ Back=99.95) |
| Implied Roll Financing APR | ((Foregone_Carry - Drop)/P_front)*12 | 0.0300 (3.00% Special vs 4.80% Repo) |
Implied TBA Dollar-Roll Financing Rate (ACT/360) Formula
Validate P_front > 0, P_back > 0, Foregone_Carry >= 0, and GC_Repo >= 0 (note: Implied Roll Rate can legitimately turn negative during extreme collateral squeezes when Drop > Foregone_Carry)!
=LET(p_fr, B2, p_bk, B3, cr_f, B4, rp_m, B5, IF(OR(p_fr <= 0, p_bk <= 0, cr_f < 0, rp_m < 0), "Invalid TBA Roll Quote", LET(dr_p, p_fr - p_bk, ROUND(((cr_f - dr_p) / p_fr) * 12, 4))))Take-Delivery vs Roll Decision Check (Back = 99.95)
Tighten Back_TBA_Price to 99.95 (Drop = 0.05 < 0.10 breakeven): Net Roll Advantage turns negative (-0.0500 pts) and Implied Financing rises to 5.40% (> 4.80% repo), telling portfolio managers to take physical pool delivery instead of rolling!
=IF(ISTEXT(E3), E3, ROUND(E2 - E3, 4))Try the example
Use the original values or change them to test your understanding.