New York Fed paper examines MBS price dislocations in March
Flight to safety and dealer balance sheet constraints widened cash-forward basis, researchers find
The combination of mortgage-backed security investors’ flight to safety in March and dealer balance sheet constraints led to severe price dislocations, research published by the Federal Reserve Bank of New York finds.
The price dislocation in MBS markets was reflected in a “substantial widening” of the “basis”, or difference between the cash and forward prices for MBS – “by $0.9 per $100 face value during the height of the Covid-19 crisis”, researchers say.
Jiakai Chen and co-authors examine
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