Hey guys, I am trying to understand Repo’s better even though CFA doesn’t seem to cover them that much. What are some alternative approaches to the holding of the underlying securities involved in a Repo? (since I believe most Repo’s are pointless)
You believe most repos are pointless? Wow. You couldn’t be more wrong. 1) Fed open market operations are almost all done through the repo market. In general, open market operations are about bond financing rather than buying and selling bonds so repo allows open market operations to be conducted without directly impacting bond prices. If you think open market operations are pointless,… 2) Repo allows bond dealers to finance their positions 3) Repo allows leveraged trades in bonds and short positions in bonds 4) Repo provides a standard interest rate at which big market participants can both lend and borrow. Thus, the interest rate implied in virtually all derivative contracts (like half a quadrillion worth) is a repo rate. Etc, etc, etc, etc… In fact, did I mention “since I believe most Repo’s are pointless” is really stupid?