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In the 15 years since the Financial Crisis, risk management has changed drastically across the marketplace. Global systemically important banks (GSIBs) increased capital. Derivative valuation and collateral process were standardized and moved onto centrally cleared exchanges. Trade-based SOFR replaced opinion-based LIBOR.

However, the mortgage market, one of the largest bond markets in the world, continues to transition even today. According to SIFMA data, the agency mortgage market in 2022 was worth nearly $11 trillion, slightly less than double 2008’s $6.3 trillion. However half of mortgages are now originated outside of the banking system according to S&P Global.

Risk remains in the mortgage production process. Each day billions of dollars of mortgage pools move though banks and nonbanks as they migrate to agencies like Freddie Mac and Fannie Mae who package them into agency MBS. Mortgage pools are “sold forward” like derivatives and called to be announced (TBAs). TBAs do not require collateral. Instead, counterparties keep lists and limits with whom they are willing to trade TBAs. While DTCC provides clearing services for TBAs, many firms do not centrally clear.

Collectively these items appear to leave the mortgage market susceptible to stresses. When banking portfolios reported losses in May of 2023, mortgage spreads over treasuries jumped to nearly 2%, levels not seen since 2008 and 2009 according to Bloomberg.

Better Risk Management Tools

Recently, CME Group launched TBA futures, centrally cleared, margined products that deliver physical TBAs through DTCC. Standardization of centrally cleared TBAs and robust margin processes removes counterparty risk while providing transparent pricing. Electronic trading allows the growing number of mortgage participants better risk management tools. All of this strengthens the large market supporting U.S. homeownership. 

The growth since launch of TBA futures has been rapid, showing strong demand for risk management in the mortgage market.

15 years after the Lehman Brothers failure, and as Federal Reserve Chair Jerome Powell highlighted at Jackson Hole, the need for risk management tools is more relevant than ever.

In an adjacent market, CME Group Treasury futures are an example of supporting the most important debt market in the world with appropriate risk management tools. Today, price discovery and risk transfer for U.S. Treasury Note and Bonds occurs far more often in futures than the underlying cash markets.

This symbiosis of the Treasury market allows participants to safely invest cash in Treasuries while risk managing exposures with futures. As the mortgage market continues to evolve, the U.S. mortgage market might one day mirror this structure.



OpenMarkets is an online magazine and blog focused on global markets and economic trends. It combines feature articles, news briefs and videos with contributions from leaders in business, finance and economics in an interactive forum designed to foster conversation around the issues and ideas shaping our industry.

All examples are hypothetical interpretations of situations and are used for explanation purposes only. The views expressed in OpenMarkets articles reflect solely those of their respective authors and not necessarily those of CME Group or its affiliated institutions. OpenMarkets and the information herein should not be considered investment advice or the results of actual market experience. Neither futures trading nor swaps trading are suitable for all investors, and each involves the risk of loss. Swaps trading should only be undertaken by investors who are Eligible Contract Participants (ECPs) within the meaning of Section 1a(18) of the Commodity Exchange Act. Futures and swaps each are leveraged investments and, because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for either a futures or swaps position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles and only a portion of those funds should be devoted to any one trade because traders cannot expect to profit on every trade. BrokerTec Americas LLC (“BAL”) is a registered broker-dealer with the U.S. Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (www.FINRA.org), and is a member of the Securities Investor Protection Corporation (www.SIPC.org). BAL does not provide services to private or retail customers.. In the United Kingdom, BrokerTec Europe Limited is authorised and regulated by the Financial Conduct Authority. CME Amsterdam B.V. is regulated in the Netherlands by the Dutch Authority for the Financial Markets (AFM) (www.AFM.nl). CME Investment Firm B.V. is also incorporated in the Netherlands and regulated by the Dutch Authority for the Financial Markets (AFM), as well as the Central Bank of the Netherlands (DNB).

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