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Why does the dollar roll market exist? Explain this using all participants in both the primary...

Why does the dollar roll market exist? Explain this using all participants in both the primary and secondary markets, from the prospective mortgagor to the dealer and investor in the secondary market.

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Answer #1

A dollar roll is a type of repurchase transaction in the mortgage pass-through securities market in which the buy side trade counterparty of a "to be announced" (TBA) trade agrees to a sell off the same TBA trade in the current month and to a buy back the same trade in a future month.

Prospective Mortgagor - purchases Rolls because of the need to borrow these more securities to cover short positions.

For Delaer as a mechanism to "borrow" pass-throughs they had sold short.

An investor sells an outright contract and wishes to push it out one month, they would then have to "buy and sell" in the one-month roll market.

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