The Financial Industry Regulatory Authority's (FINRA) Trade Reporting and Compliance Engine (TRACE) data showed that private-label RMBS trading activity has dropped about 50% since June.
TRACE began collecting aggregate data on the asset class on May 16, according to a Credit Suisse report.
"With about six months of data now available, we can now take a deeper look into private-label MBS trading volumes and trends, such as total activity and customer demand has begun reporting aggregated data on private label RMBS trading activity," analysts said in the report.
Total volume for non-agency RMBS since May 16 is almost $255 billion through the end of November.
According to TRACE figures, 83% of that activity has been in P&I bonds, and 90% has been in sub-investment grade bonds.
Daily trading volumes have dropped by almost 40% since May since June, with customers absorbing as dealers shed assets with high risk weightings under Basel III.
"Market participants have worried about falling BWIC trading volume as a sign of declining liquidity in the private label MBS market," analysts wrote.
However, they said that while liquidity has fallen, the TRACE data suggested that more liquidity exists beyond public sheets, and noted an increase in “shadow liquidity” or the share of trades occurring outside of BWIC lists.