When the drop becomes very large, the dollar roll is said to be "on special". This might happen for several reasons, including large collateralized mortgage obligation deals that increase the demand for mortgage pass-through securities, or unexpected fallout of mortgage closings in a mortgage originator's pipeline. In both cases, financial institutions might have more sell trades in the current month than they are able to deliver securities into, forcing them to "roll" those trades into a future month.
The greater the shortage of available securities in the current month, the larger the drop becomes. Investors that could anticipate such conditions could profit from a dollar roll transaction.
Rolls can be purchased by a new transaction where the originator wishes to push their hedge out to a further date. For example, if 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. Because there is no increase or decrease in the outright position, dollar rolls carry no, or very little, duration risk.
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Wishlist Log in to view your wishlist. Items in wishlist:. Items in cart:. Na You. Hot Casa France. Share this release!May 23, · Dollar Roll: 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.