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Capital Markets

Bond delivery failure: Brokers fail to deliver MBS

Fails lower but still persisting; Are broker dealers profiting from fails?

Fails to deliver in the mortgage bond market are still at high levels. In the week ended August 25, $755.5 billion of mortgage-backed bonds failed to be delivered. That’s down from a week of $1.34 trillion fails in July, but still far too high, say industry experts. Weekly averages before this year were about $150 billion.

Susanne Trimbath, founder of economic consultancy firm STP Advisory

"We’re still seeing days of $4 billion of mortgage-backed securities that are not being delivered"

Susanne Trimbath, STP Advisory Service

The Treasury Market Practices Group has been given the extended role of addressing the ballooning amount of fails to deliver in the MBS market. In July it issued a "best practices" paper advising broker dealers to pay closer attention to fails, and to avoid practices that cause them. To some extent, the spotlight on the situation has cleaned up almost half of fails since their peak earlier in the year, but Susanne Trimbath, founder of economic consultancy firm STP Advisory, says unless something is formally introduced to stop broker dealers from failing to deliver securities, the problem will simply re-emerge.

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