MBS Market Dysfunctions in the Time of COVID-19

Jiakai Chen (), Haoyang Liu (), David Rubio, Asani Sarkar and Zhaogang Song
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Jiakai Chen: http://www.shidler.hawaii.edu/fin/directory/jiakai-chen

No 20200717, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: The COVID-19 pandemic elevated financial market illiquidity and volatility, especially in March 2020. The mortgage-backed securities (MBS) market, which plays a critical role in the housing market by funding the vast majority of U.S. residential mortgages, also suffered a period of dysfunction. In this post, we study a particular aspect of MBS market disruptions by showing how a long-standing relationship between cash and forward markets broke down, in spite of MBS dealers increasing the provision of liquidity. (See our related staff report for greater detail.) We also highlight an innovative response by the Federal Reserve that seemed to have helped to normalize market functioning.

Keywords: mortgage-backed securities (MBS) market; liquidity; COVID-19 (search for similar items in EconPapers)
JEL-codes: E5 G1 (search for similar items in EconPapers)
Date: 2020-07-17
New Economics Papers: this item is included in nep-fmk, nep-mac and nep-ure
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