A dollar roll is similar to a reverse repurchase agreement and provides a form of collateralized short-term financing with mortgage-backed securities comprising the collateral.[1] The investor sells a mortgage-backed security for settlement on one date and buys it back for settlement at a later date. The investor gives up the principal and interest payments during the roll period, but can invest the proceeds and usually is able to buy back the mortgage for a lower price than the sale price. The difference in the prices is called the drop, which is usually priced between SIFMA settlement dates. The value of the drop plus interest earned on the proceeds of the sale less the forgone interest and principal payments on the mortgage, is considered the roll specialness or financing advantage. With repurchase agreements exactly the same security is returned to the investor, while with dollar rolls the investor buys a substantially similar—but not necessarily identical—security. This difference produces complex results under certain areas of the United States Internal Revenue Code.
Dollar rolls help investors achieve various objectives, such as staying invested in mortgages while earning a trading spread. Likewise, if an investor faces operational or delivery obstacles with respect to a certain mortgage-backed security, a dollar roll may help the investor retain the economic exposure while avoiding the operational difficulties.[2][3]
dollar, roll, this, article, needs, additional, citations, verification, please, help, improve, this, article, adding, citations, reliable, sources, unsourced, material, challenged, removed, find, sources, news, newspapers, books, scholar, jstor, september, 20. This article needs additional citations for verification Please help improve this article by adding citations to reliable sources Unsourced material may be challenged and removed Find sources Dollar roll news newspapers books scholar JSTOR September 2014 Learn how and when to remove this message A dollar roll is similar to a reverse repurchase agreement and provides a form of collateralized short term financing with mortgage backed securities comprising the collateral 1 The investor sells a mortgage backed security for settlement on one date and buys it back for settlement at a later date The investor gives up the principal and interest payments during the roll period but can invest the proceeds and usually is able to buy back the mortgage for a lower price than the sale price The difference in the prices is called the drop which is usually priced between SIFMA settlement dates The value of the drop plus interest earned on the proceeds of the sale less the forgone interest and principal payments on the mortgage is considered the roll specialness or financing advantage With repurchase agreements exactly the same security is returned to the investor while with dollar rolls the investor buys a substantially similar but not necessarily identical security This difference produces complex results under certain areas of the United States Internal Revenue Code Dollar rolls help investors achieve various objectives such as staying invested in mortgages while earning a trading spread Likewise if an investor faces operational or delivery obstacles with respect to a certain mortgage backed security a dollar roll may help the investor retain the economic exposure while avoiding the operational difficulties 2 3 References edit Lemke Lins and Picard Mortgage Backed Securities 5 5 Thomson West 2013 ed Lemke Lins and Picard Mortgage Backed Securities 5 5 Thomson West 2013 ed Dollar rolls pwc com Retrieved 2016 01 04 nbsp This economics related article is a stub You can help Wikipedia by expanding it vte Retrieved from https en wikipedia org w index php title Dollar roll amp oldid 1202597319, wikipedia, wiki, book, books, library,
