How an additional repo affect original portfolio duration?

How an additional repo affect original portfolio duration, for example overnight repo, and how for a 2 year repo?

I assume that you are using this repo to leverage your portfolio, as this is what the books use them for. If this is true then any repo would lower your duration, but the 2 year would lower duration further than an overnight repo holding all else equal.

For example:

port = 100,000; Duration=10

repo = 25,000; overnight Duration=0; 2 year duration=2

leveraged portfolio mkt value is 125,000

new duration using overnight repo is 10*(100/125) + 0(25/125) = 8

new duration using 2 year repo is 10*(100/125) + (-2)*(25/125) = 7.6

Does that answer your question?

Thanks a lot.

A follow up question.

If the port manager use the repo proceeds to buy additional duration which is the same with the oringinal port, what would this bond impact the port?

after investing the borrowed funds the duration then is typically higher than the original portfolio. this is because the duration of the invested funds is typically higher than the duration of the borrowed funds.

Why would the duration of the 2 year repo be -2 and not +2?

Bc instead of owning a fixed income security, you owe it. It’s like being short a bond.

You can use repo agreement in part of bond portfolio.

I just read the question but i feel some unsure…I think there is same with leverage and domination should be 100 (original port value).

let me check curri

Fin, I checked the curri…though it do not give any detail but I think the diff btw leverage and repo is collaterized or not. Others are same.

I restate the example:

They use 2 year repo to fund for some more in current portfolio with duration 10.


New duration: (125 * 10 - 25 * 2)/100= 12

Actualy, there is some diff in repo rate that mean your owed a (sale + repo rate)…though leverage also do not mention about interest on loans…

Any miss ?