what does mbs/mortgage trading desk do?

Mortgage-backed securities (MBS) or mortgage trading desks primarily focus on trading securities that are backed by pools of mortgages. Here's a breakdown of what they typically do and what junior traders might work on:

Daily Activities of MBS/Mortgage Trading Desks

1. Trading and Market Making: Traders buy and sell MBS to provide liquidity to the market. They analyze market conditions, interest rate movements, and prepayment risks to make informed trading decisions.
2. Risk Management: Managing the risks associated with interest rate changes, credit risk, and prepayment risk is a significant part of the job.
3. Pricing and Valuation: Traders use models to price MBS accurately, considering factors like interest rates, credit spreads, and prepayment speeds.
4. Client Interaction: Engaging with institutional clients to understand their needs and provide tailored solutions.

Junior Trader Responsibilities

• Building and Maintaining Models: Junior traders often work on models to analyze prepayment speeds, interest rate sensitivity, and other factors affecting MBS pricing.
• Automation: Automating repetitive tasks is a big focus. This could include automating data collection, trade execution processes, or risk reporting.
• Data Analysis: Analyzing large datasets to identify trends, risks, and opportunities in the MBS market.
• Learning the Desk's Tools: Junior traders are expected to get comfortable with the desk's existing tools and systems, which might include proprietary platforms or widely used software.

Coding and Tools

• VBA: While VBA is useful for quick automation tasks in Excel, it might not be sufficient for more complex modeling or large-scale automation.
• Python: Python is highly recommended for its versatility in data analysis, automation, and integration with other systems.
• SQL: Essential for managing and querying large datasets.
• R: Useful for statistical analysis and modeling, though Python often overlaps in functionality.
• C++: Sometimes used for high-performance tasks, especially in quant-heavy desks.

What to Learn

1. Programming Skills: Focus on Python and SQL for automation and data analysis. VBA can be a good starting point but aim to transition to more advanced tools.
2. MBS Valuation and Prepayment Models: Learn about the factors influencing MBS pricing, such as interest rates, credit spreads, and prepayment risks.
3. Fixed Income and Credit Knowledge: Understanding the broader fixed income and credit markets will help you grasp the context of MBS trading.
4. Quantitative Finance: Familiarize yourself with quantitative finance concepts, as they are often applied in MBS trading.

Additional Resources

• Courses and Books: Look for quant finance courses or books that focus on MBS valuation and fixed income trading.
• Networking: Engage with professionals in the field to gain insights and advice.

Automation and coding are indeed significant parts of the role, and developing strong technical skills will set you apart.

Sources: Preparing for a Jr. Trader/Desk Assistant Role, Learning to code via MBS valuation, Bulge Bracket Trading in Government Bonds, Career Bankers: Coverage vs M&A, Q&A: I’m a 2nd-year Associate in Corporate Banking with an online MBA