Negative Rates in Bilateral Repo Markets

Samuel J. Hempel and Robert Kahn
Additional contact information
Samuel J. Hempel: Office of Financial Research

No 21-03, Briefs from Office of Financial Research, US Department of the Treasury

Abstract: Interest rates on repurchase agreements (repo) are crucial indicators of conditions in financial markets. This brief discusses negative rates in bilateral repo markets during 2021, and shows that they stemmed from two key sources: (1) broad factors that pushed down general collateral repo rates, and (2) narrower factors that pushed bilateral repo rates below comparable tri-party general collateral rates. Broad factors include increases in bank reserves and decreases in the supply of close alternatives to repo in early 2021. Narrower factors primarily concern demand for specific collateral in the bilateral market. Finally, the brief examines the effects of negative rates on the Secured Overnight Financing Rate (SOFR) and shows the existing construction of the SOFR successfully limits the impact of specific collateral demand on the reference rate.

Keywords: Repurchase agreement; repo specials; financial markets; reference rate (search for similar items in EconPapers)
Pages: 16 pages
Date: 2021-09-27
New Economics Papers: this item is included in nep-ban, nep-fmk and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.financialresearch.gov/briefs/files/OFR ... ral_Repo_Markets.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ofr:briefs:21-03

Access Statistics for this paper

More papers in Briefs from Office of Financial Research, US Department of the Treasury Contact information at EDIRC.
Bibliographic data for series maintained by Corey Garriott ().