Hey, we don't mind trading in the trusty ol' BATESAT range, do we Onion? I do have a quick question for you. What is your level of familiarity with the "TBA dollar roll" aspect of AGNC's last couple of earnings reports? When it popped up so prominently last quarter (when other traditional earnings factors were clearly under continued pressure), I couldn't help but wonder if Mr. Kain and friends were having to get increasingly creative in order to keep the numbers afloat. Obviously, even the TBA dollar roll activity wasn't enough to keeps thing right side up this quarter. I guess my real concern is whether or not the aggressive utilization of TBA dollar roll is something that eventually "comes home to roost" - meaning even tougher times could lie ahead. Thanks in advance for any wisdom you may be able to share!
When you buy MBS on a TBA basis you are getting a discount to existing pools because you are betting on future rates and dont know pool size or geography of the pool -These criteria are important for deternining CPR projections. Now this all works to your advantage as rates fall because when the TBA is actually issued it is worth more by default, add to that rates are lower than when you bought it and you have a large instant BV gain.
I have had clients that constantly buy TBA MBS and sell them a few months after they are issued.
Now TBA dollar roll is the differntial of price from 1 month to the next.
If I buy 30yr 3% TBA for May the price is higher than for Jun and Jun is higher than July etc.
The differntial is constantly changing: its a factor of cost of funding, coupon and prepayments.
Similar to options pricing same strike and differnt months but in reverse..
Perhaps- but do not think we will dip below 29. It will hinge on the conference call at 11. If there is alot of negativity- yeah i think we will see 28. If not we could close over 30- I will buy below 29