Repo Rates and the Collateral Spread: Evidence

Kjell Nyborg and Cornelia Rösler
Additional contact information
Cornelia Rösler: University of Zurich

No 19-05, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: The spread between unsecured and repo rates (collateral spread) fluctuates substantially and is negative on a significant portion of days. Recent theoretical work argues that collateral spreads are determined by a constrained-arbitrage relation between the unsecured rate, the repo rates, and the expected rate of return of the underlying security. Negative collateral spreads arise in equilibrium if unsecured markets are sufficiently tight, unsecured rates spike down, or security markets are sufficiently depressed in terms of prices, liquidity, and volatility. The objective of this paper is to examine the determinants of collateral spreads by testing the constrained-arbitrage theory. The findings are supportive.

Keywords: collateral spread; liquidity; unsecured rate; repo rate; general collateral; Eurex Repo (search for similar items in EconPapers)
JEL-codes: G01 G12 G21 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2019-02, Revised 2019-02
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Repo rates and the collateral spread: Evidence (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1905

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