Monthly Roll in the process. MBS price appear to Fall

April Fannie and Freddie 30 year fixed-coupon MBS have begun the process of settlement and soon it will look as the price of the MBS only rapidly.

WHY???

Today is class
In the date of notification of the secondary mortgage market. Class A
Coupons MBS consist of Fannie Mae and Freddie Mac 30-year loan notes. Coupons MBS, which determines the speed of the arkusz cen are traded on the market of TBA MBS.

TBA = to be announced.

On the market of TBA MBS, at that time shall be trade, buyers and sellers agree to several specific conditions such as the coupon, the issuing agency shall (Fannie, Freddie, Ginnie), the size of the trade and the price of purchase/sales ... an actual loan pools are not being exchanged at the time of this commitment. Instead, the buyer MBS and
the seller make Agreement in order to complete the transaction at a later date.
In the MBS market this date is determined; disputes, it is called
DAY (clever name huh?).

Marketing Agency MBS deals once a month.  Two
days before the date of the settlement to make monthly, seller MBS "notifies" the buyer of MBS defined pools which provide
meet earlier agreed to the terms of trade.

This
guidanceis Fannie Mae:

"Forty-eight hours prior to the settlement of disputes, the pool of information must be communicated to the capital markets
Sales Desk back office by phone (202-752-number c(2006) 5384), facsimile (202-752-3439), or through transmission; EPN. The provision of information in the pool must be in place by 3: 00 p.m. Eastern time. It is desirable that the pool of information is given early as telephone lines, fax machines, and the queue; EPN are highly taxed as 3: 00 p.m. deadline approaches. If transmission does not occur by 3: 00 p.m., the failure of one day will be incurred, despite the fact the information stays in the queue. "

Then
the buyer of MBS reviews information pool to ensure that the seller gave credits that meet the agreed conditions.  48 hours later, after being considered in "Good delivery guidelines, wired purchase pool funds and trade is complete (it goes deeper. .. This is the outline).

BUT WHY THE PRICES SEEM TO FALL WHEN WE ROLL, STARTING FROM THE FRONT TO THE REAR OF THE MONTH COUPON?

Today, the front month is coupon delivery April and at the month of delivery may
coupon. Tomorrow's delivery of the front month become may month coupon and back become June delivery (BACK month COUPONS DICTATE PRICING loans, but the FRONT month COUPONS do more than ENOUGH to provide DIRECTIONAL guidance. SEE MORE BELOW)

Prices
Don't really "fall" like they sell off although the decrease in prices reflects the fact that we are turning the front month for copies of the month, because the ticket front month began the process of settlement and back month has 30 days to the point of reference.

Below
is the current coupon FNCL 4.5 MBS settlement in April. It offers 101-11. Before Done day will we roll for may delivery, and it seems that the price of the coupon to the front month will fall to 101-00.

101-00 is, where the supply may FNCL 4.5 is currently offering. This is where prices would seem to fall on the chart above after initial roll on trading screens.

 

 The main reason for the price of a "DROP" is lost "time value of money".

Interest rates leads to three ways.

1. Required rate of return: this is the minimum amount of return an investor wishes to investment.
2. The discount rate: the rate used to determine the present value of future cash flows. When someone to borrow money with the intention of being paid back in the future, the value must be placed as far as premium are losing by not now money this money. The discount rate is, in principle, if the loading delay repayment for the future.
3. Cost: the value of the investor shall be when choosing alternative investments. Must earn enough interest when you
   someone loan money to compensate for loss of income, which you can earn by investing elsewhere.

Let me ASK the question: Or rather have a $ 1.00 today or $ 1.00 tomorrow?

$ 1.00 Would rather have today! If you have today, $ 1.00 you can invest this today ... the fact you're now investing vs. tomorrow involves you giving assets more time to appreciate, more time to accumulate the percentages (charging).

To
If you buy 4.5 FNCL April relate to the concept of the market in MBS---

coupon, then Your returns will begin accruing on 1 April. If you buy
coupon may---Your returns don't start accruing to 1 May.
This means that the
You will have to wait 19 days (from today) for money to start working for you.  Invest now, before you roll, put money to work now or in the case of today, April 1.

Starting tomorrow, because the coupon has already entered into force in April
the settlement process, MBS investors will wait until May 1, to see
their funds put to work. To compensate for the loss of the "time value of money, investors demand higher yields of MBS. This value of lost time, money
is discounted through lower price coupon month back (including dividends for FNCL 4.5).

Note: to be clear, the previous owner has the right to income (accrued interest) derived from, when they owned
coupon. The price to pay to purchase coupon month back covers the current owner of the accrued revenue when they owned the coupon.
Buyer recovers the premium, where the added coupon payment is deposited in their accounts. This is called "clean price" ... is the same weighting to trade.

Plain
and simple: If your own coupon April FNCL 4.5 MBS, you need to

shall be entitled to a coupon clips (income) paid in April. If you decided to
Buy ticket may MBS ..., and then you must wait until may for
your investment to start accruing interest. To compensate for the loss of the "time value of money", investors require higher performance, which is why prices fall when the supply roll front month to month back. (not including any profit derived from the price movement)

This
explains why 60 to 90 day locks are more expensive. The longer the commitment period, locks them more costs the lender to win interest rate volatility and fall out of the risk.

HOW DOES THIS LOAN AFFECT PRICES?

You will not be able to see the effects of tomorrow. Lenders have been building loan pricing based on coupon may already a few weeks.  
Lenders must roll because the secondary desk are lower in the chain of supply of MBS and to provide their closed loans to investors with sufficient time to enable after the date of closing/pre-purhcase review claims. I'll probably roll forward to June coupon class and MBS deliveries in the next few days.