Paired TBA transactions that sell an agency MBS position for one settlement month and buy a similar position for a later month.
A dollar roll is a pair of TBA-market transactions in which a participant sells an agency MBS position for one settlement month and simultaneously buys a substantially similar position for a later month.
A dollar roll matters because it lets market participants shift agency MBS exposure from a near settlement month to a later month. The two legs generally use the same agency, product, coupon, and face amount, but the securities delivered on the later leg do not have to be the identical pools delivered on the near leg.
The price difference between the two settlement months is commonly called the drop. Evaluating the transaction also involves the principal and interest cash flows, expected prepayments, financing value, and pool characteristics given up or received between settlements.
For borrowers, the term is a background concept. The borrower does not negotiate a dollar roll, but the liquidity and timing mechanics of the TBA market support the rate sheets and lock-management systems borrowers do experience.
Borrowers encounter dollar-roll effects only indirectly through the broader mortgage pricing environment.
The term becomes practical when explaining why lenders manage locked loans, expected closings, and investor delivery dates carefully. If loan production or settlement timing changes, a market participant may roll a position instead of settling the original timing exposure and establishing an unrelated new trade.
| Leg | Position | Timing effect |
|---|---|---|
| Near-month leg | Sell a specified TBA category for the earlier settlement | Removes or delivers the near-month position |
| Far-month leg | Buy a substantially similar TBA category for later settlement | Re-establishes similar exposure in a future month |
Because the later delivery can use different qualifying pools, a dollar roll is not simply an agreement to return the exact same securities. It is also not the same as extending a borrower’s mortgage rate lock.
| Term | What it explains |
|---|---|
| To-Be-Announced Market | Forward agency MBS trading channel |
| Dollar roll | Moving similar exposure from one settlement month to another |
| TBA Settlement | Completing a TBA trade with eligible pools |
| TBA Pair-Off | Offsetting a position rather than delivering as expected |
A market participant sells $20 million of a specified agency 5.5% TBA for June settlement and simultaneously buys $20 million of the same agency, product, and coupon for July settlement. The July price is lower by an agreed drop.
The transaction moves similar market exposure into July. Its economics depend on more than the quoted price difference because the participant also gives up the intervening cash flows and receives whatever qualifying pools are delivered on the later leg.
Dollar roll differs from TBA Settlement because settlement completes a trade, while a dollar roll moves similar exposure across settlement months.
It differs from TBA Pair-Off because a pair-off offsets a position, while a dollar roll replaces one timing position with another similar later position.
It also differs from Rate Lock because the rate lock is the borrower-facing promise, while dollar roll is a secondary-market timing transaction behind the scenes.