By the Numbers
Specified pool spreads tighten as trading volume stays elevated
This material is a Marketing Communication and does not constitute Independent Investment Research.
Specified MBS pool spreads have tightened considerably over the last year compared with TBA, likely a result of a large increase in specified pool trading. Primary dealer trading in specified pools is up 50% over last year. It is possible that the heightened activity is from Fannie Mae and Freddie Mac buying specified pools for their investment portfolios. But another possibility is that investors could be reacting to special dollar rolls in certain coupons.
The OAS tightening has reached every FNCL 6.0% 2024 pool type, for example, except New York, where the difference is small (Exhibit 1). Comparing the current spec-to-TBA OAS difference with the difference on August 21, 2025, which had a mortgage rate comparable to today’s, shows that spreads are tighter despite similar prepayment risk.
Exhibit 1. Specified pool OASs have tightened relative to TBA (FNCL 6.0% 2024)
Source: Bloomberg, Santander US Capital Markets
There was a large pickup in specified pool trading activity that started in late January (Exhibit 2). Average volume this year has been 51% higher compared with 2025. And since the end of February, specified pool trading volume has been 66% higher than last year on average.
Exhibit 2. Specified pool trading volume has jumped this year
Source: Federal Reserve Bank of New York, Santander US Capital Markets
TBA trading volume, however, has only shown a modest pickup this year (Exhibit 3). Year-to-date 2026 looks comparable to the second half of last year, and both are only slightly higher than the first half of 2025. And TBA trading has even fallen a little over the last few months.
Exhibit 3. TBA trading activity has been consistent with prior years
Source: Federal Reserve Bank of New York, Santander US Capital Markets
Normalizing specified pool volume by dividing by total MBS trading volume—combining TBA and specs—clearly shows that the pickup in specified pool trading was not mirrored in TBA trading (Exhibit 4). The ratio has moved sharply higher this year after four years of steady behavior that covered different levels of mortgage rates and prepayments.
Exhibit 4. Spec trading volume vs. TBA trading volume
Source: Federal Reserve Bank of New York, Santander US Capital Markets
In principle, trading volume could increase because there is more pool issuance. But net supply has been relatively low and is comparable to last year. So that is unlikely to explain a large, sudden move. Another unlikely possibility is the addition of more specified pool types, like higher loan-balance categories, and growing Ginnie Mae custom pool issuance. But those trends, which were well underway in 2024 and 2025, are unlikely to explain a sudden pickup this year.
Two other explanations seem more plausible. The first is the growth of Fannie Mae’s and Freddie Mac’s mortgage investment portfolios. Both enterprises started to buy MBS last year. Then the specified trading volume increased after President Donald Trump posted on Truth Social in early January that the enterprises would buy $200 billion of MBS. The government-sponsored enterprises (GSEs) have reason to prefer specified pools to TBA. They are not fully hedging the interest rate risk in their portfolios, since the hedges create earnings volatility. They can instead lower their risk by buying specified pools that have less negative convexity.
The volume could instead come from other MBS investors responding to special dollar rolls. For example, the 3.5% roll has been very special at times this year. That could encourage investors to deliver low pay-up specified pools into TBA contracts, which ultimately could show up as more specified pool trading.
If the GSEs are the explanation, then it is possible that specified pool OASs will remain tight or tighten further because Fannie and Freddie need to buy more MBS to reach the $200 billion goal set forth by the president. However, portfolio growth has been lighter than expected; which may signal a fading GSE bid and wider spreads. And spreads could widen rapidly if dollar roll specialness vanishes.
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