why does the repo rate decrease when collateral has limited availability? i thought this was a misprint but was in both schweser notes and secret sauce.
Because then it’s “special collateral” (no joke, that’s what it’s called) *snicker, snicker* that is very rare and hence more valuable then readily available securities. Just one of those CFA dreamland concepts that we need to pretend exist on June (whatever day the test is).
wait i thought more valuable securities, emerging market bonds/stocks -> higher repo rate less valuable securities, large cap equities -> lower repo rate
BiPolarBoyBoston Wrote: ------------------------------------------------------- > wait i thought > > more valuable securities, emerging market > bonds/stocks -> higher repo rate > less valuable securities, large cap equities -> > lower repo rate “Value” has nothing to do with it - it’s akin to which is heavier, a ton of bricks or a ton of feathers. It’s the characteristics (liquid, “special”, etc.) of the collateral that can influence the rate - if you need to post $10MM (a “value”) in collateral, the “value” of your collateral will be $10MM - that won’t change. The fact that the collateral is “special” will cause the repo rate to be lowered because it’s more “desired” collateral.
you’re confusing quality of securities vs demand/supply of them in a repo, im “lending” a security to borrow money at a rate, you get that rare security that you can now perform a total return swap with someone else with (im on a delta one desk). The more rare that security, the more it’s worth to the person lending the cash and the less he’s going to charge you to borrow. Thats my 0.02