The number of March TBA futures that took delivery rose to 170 contracts, a significant increase from February’s already impressive jump. Investors continue to build confidence and liquidity in TBA futures, which are physically delivered at the Fixed Income Clearing Corporation (FICC). These month-on-month increases in physical delivery demonstrate a growing readiness among firms to ramp up participation in TBA futures going forward.

This delivery milestone comes as liquidity in TBA futures continues to deepen, with four market makers now streaming continuous two-sided markets at competitive bid-ask spreads that are, for some market participants, better than quotes received in the OTC TBA market. Electronic trading on the central limit order book (CLOB) is complemented by an increasingly active block market supported by six block market makers.

TBA futures have already seen support from banks, hedge funds, mortgage originators, and asset managers. Proprietary traders are also using TBA futures to gain access to the MBS market for the first time and to augment relative value strategies.

These developments come as uncertainty around the Fed's path for interest rates grows by the day -- further elevating the need for an effective and liquid hedge for mortgage rates.

Data as of 13 Mar 2023 at 10 am CT
Source: CME FedWatch Tool powered by QuikStrike 

Open Interest (OI) for April TBA futures continues to build open interest and volumes , across the entire of the coupon stack. The May contract will increase the size of the stack to include the new high coupon of 6.5%.

With the coupon stack offering outright and spread opportunities for coupons ranging from 2.0% to 6.5%, ICS opportunities within the stack and versus Treasury futures, the TBA futures ecosystem is rapidly growing.

Gain access to the MBS market

TBA futures trade via an all-to-all electronic order book, bringing equal access, transparent price discovery, and streaming liquidity to the Mortgage-Backed Securities (MBS) market.

All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.

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