Is Wiley wrong about duration and repo rates?

CFA Level III
#1

I purchased Wiley’s 11th hour review video, which I have mixed feelings about.

In any case, during the fixed income video, the instructor, Daren Miller, makes two comments that I’m a little confused about.

At about 11:28 into the video, he asserts that “the higher the overall level of interest rates in the economy, the lower the repo rate.” I would think the opposite to be true.

Additionally, at around 18:48 in the video, on the topic of brekeven spreads he says that investors in low-yield countries may seeking a yield pickup in bonds from higher-yielding countries, but that lower-yielding countries will tend to have a much higher duration. Again, shouldn’t the opposite be true?

WTF?

#2

1- I think the reason is since there’ll be a huge demand for higher yielding treasuries, the rate on repos would fall. 2- Take a look at rules of duration. Lower the ytm higher the duration.

#3

I’ll accept #2, but in the case of the treasury yields, I would think that as benchmark securities, T-bill rates would drive repo rates. Plus, in the curiculum, it’s stated that repo rate correlates with Fed funds rate (I’m sure that repo agreements are settled in fed funds in the US,) so again, I think that the overall rates in the economy should be reflected in the repo rate.

#4

Yes if overall rates are high I.e fed funds is also high, repo rates are also high. This is the effect of high rates of t-bonds& notes. T-bonds& notes drive repo rates heavily & are traded heavily in repo markets. Higher yields on these will increase their demand. Since everyone would want those bonds for either safety/liquidity/higher relative yields, the repo lender would love to have the bond as collateral and lend cheaper. This high demand for these securities causes repo rates to go down.

#5

FYI… If you have time, please check up"repos trading special " on the net and read some of the stocks. It’s an extreme example of low repo rates which can be caused by excessive demand for treasury notes (infact negative repo rates).

#6

Typo- not stocks, stuff/articles

#7

Thanks, I will check out what you mentioned.

#8

You’re welcome!