What are "Dollar Rolls"

I've looked up a bunch of different definitions of dollar rolls, and I've asked a bunch of the guys that I work with but no one has a great definition or explanation of what they are. So what are they, what do they do, why do you want them... yada yada.

I'm just looking to gain a basic understanding of them.

Thanks!!

8 Comments
 

AS I understand it...basically its the advantage/disadvantage of buying and holding a MBS in the front month vs financing the purchase of this front month MBS by selling a out month MBS. the price difference (the drop) is your cost of financing. If this is lower than your borrowing costs, then it makes sense to "roll".

 

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