repo market trading strategies

bets that interest rates will not rise substantially during the life of the bond. The basic motivation of sell/buy backs is generally the same as for a classic repo,.e. Expression of Interest Form for RRP Counterparties: Banks and Savings Associations. A repo is technically a single transaction whereas a sell/buy back is a pair of transactions (a sell and a buy). Firms must be able to execute RRPs with securities margined at 100 (i.e. However, since the buyer only has temporary ownership of the security, these agreements are often treated as loans for tax and accounting purposes. Government debt, agency debt and agency mortgage-backed securities.

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Open Repurchase Agreements, the major difference between a term and an open repo lies in the amount of time between the sale and the repurchase of the securities. At first repos were used just by the Federal Reserve to lend to other banks, but the practice soon spread to other market participants. Due to the high risk to the cash lender, these are generally only transacted with large, financially stable institutions. This might seem counterintuitive, as the legal ownership of the collateral rests with the buyer during the repo agreement. "US default would spell turmoil for the repo market". The party who initially sells the securities is effectively the borrower. Especially in the US and to a lesser degree in Europe, the repo market contracted in 2008 as a result of the financial crisis. This was because treasuries are the most commonly used collateral in the US repo market, and as a default would have downgraded the value of treasuries, it could have resulted in repo borrowers having to post far more collateral. The tri-party agents are able to offer sophisticated collateral eligibility filters which allow the repo buyer to create these "eligible collateral profiles" which can systemically generate collateral pools which reflect the buyer's risk appetite. The following table summarizes the terminology: Repo Reverse repo Participant Borrower Seller Cash receiver Lender Buyer Cash provider Near leg Sells securities Buys securities Far leg Buys securities Sells securities Maturities of repos edit There are two types of repo maturities: term, and open repo. PfpnpntFtN365textstyle frac P_F-P_NP_Ncdot frac t_F-t_N365 can be interpreted as the interest rate for the period between near date and far date.