Can anyone give some clarity on why the duration of an overnight repo will be higher than a two year? Looking at question 13 Reading 22 - trying to find in curriculum with no luck. Thanks!
It isn’t. The (modified) duration of a repo is slightly less than the time to its maturity; it is, essentially, a zero coupon bond.
What you appear to be missing is that TBW is using the repo to _ borrow _ money; it’s short the duration of the repo. As a 2-year repo has a longer duration than an overnight repo, using the 2-year repo will shorten TBW’s overall duration more than using the overnight repo.