Treasuries and the REPO RATE ?
Treasuries and the REPO RATE?
I have a question about the overnight "Repo
Rate," which is the rate that primay dealers (like
Merrill Lynch and Goldman Sachs) charge you
for buying 5 and 10-year Treasuries ON MARGIN.
How closely does the "Repo Rate" for buying Treasuries
on MARGIN follow the Fed Funds rate over time? Currently Fed Funds is
set at 1 percent, and the Repo is at about 0.92 percent. (Or
decimally, 0.01 versus 0.0092).
It's easy to find online graphs showing the level of the
Fed Funds Rate over time, say over ten and twenty
years, but I have yet to find anywhere a graph tracking the
Repo Rate over time.
That's why I'm wondering how closely the Repo Rate
follows the Fed Funds Rate. For example, is the Repo always
about 6 or 8 basis points less than the Fed Funds rate, even say
when Fed Funds was at 6 percent in 1994?
- No it isn't. An owner (large institution) of Treasuries sells them with
an agreement to buy them back in the future at a higher price. That is not
the same as buying on margin.
- I wonder why the overnight Repo Rate sometimes falls when
y