Key points
- Primary funding source for bond dealers and leveraged investors.
- Repo market dysfunction signals liquidity stress.
- September 2019 repo spike to 10% showed funding fragility.
Example
A bond dealer can fund $100 million of Treasuries by lending them overnight as collateral and borrowing cash against them, repeating the trade the next day.
In history
In mid-September 2019, a corporate tax deadline and large Treasury settlements drained cash just as reserves were scarce; some repo trades hit 10%. The Fed responded with daily repo operations, then began buying Treasury bills to add reserves.
Related terms