Defragmenting Markets: Evidence from Agency MBS

UNIVERSITY OF TECHNOLOGY SYDNEY
Finance Department
Research Seminars in Finance

James Vickery

Topic: Defragmenting Markets: Evidence from Agency MBS

Speaker: James Vickery, Federal Reserve Bank of Philadelphia

Abstract: Agency mortgage-backed securities (MBS) issued by Fannie Mae and Freddie Mac have historically traded in separate forward markets. We present evidence that market liquidity endogenously concentrated in Fannie Mae MBS, leading to higher issuance and trading volume, lower transaction costs, and higher prices than Freddie Mac. The historic Single Security Initiative culminated in the consolidation of Fannie Mae and Freddie Mac MBS trading into a single market in June 2019. Trading volume and prices partially converged prior to this implementation, in anticipation of future liquidity conditions. Concerns that market consolidation would significantly reduce Fannie Mae liquidity were not borne out; this was in part achieved by aligning characteristics of the underlying MBS pools issued by the two agencies. Consolidation increased Freddie Mac’s fee income by enabling them to remove discounts that previously compensated loan sellers for lower liquidity.

Moderator: Harry Scheule, University of Technology Sydney

Date: Wednesday, 10th February 2021
Time: 2-3 pm (Australian Eastern Daylight Time)
Venue: This is on online Zoom webinar.

Seminar protocols:

  • The webinar will run for 45 minutes, followed by a 15 minute Q&A session.
  • There will be a moderator for each seminar event, who will facilitate communication and resolve any technical issues.
  • Participants can use the chat facility or raise their had to ask questions during the presentation. The moderator will then alert the speaker at the appropriate time and either ask the questions raised or unmute the participant so they can ask the question directly to the presenter.

Co-ordinator: Harry Scheule

Enquiries: Duncan Ford

Back to Finance seminars
Acknowledgement of Country

UTS acknowledges the Gadigal people of the Eora Nation, the Boorooberongal people of the Dharug Nation, the Bidiagal people and the Gamaygal people, upon whose ancestral lands our university stands. We would also like to pay respect to the Elders both past and present, acknowledging them as the traditional custodians of knowledge for these lands.