About the Report
An annual update and overview to the U.S. repo market.
The $5 trillion daily turnover in the repurchase, or repo, market is a vital, but not always well understood, part of the U.S. financial system. The repo market represents a liquid, efficient, tested and safe way for firms to participate in a short-term financing arrangement, providing funding for their day-to-day business. Repurchase agreements, or repos, are a sale of financial assets combined with a promise to repurchase those assets in the future (in many cases, the repurchase is agreed for the following business day). These arrangements have the economic characteristics of a secured loan - cash vs. collateral - and are used by short-term institutional cash investors as a secured money market instrument and by dealers as a way to finance long positions in securities.
While a broad array of assets may be financed in the repo market, the financial assets most commonly used include U.S. government and Federal agency securities, high quality mortgage-backed bonds and corporate bonds and money market instruments. Recent data for the tri-party repo (a form of repo that uses an agent to maintain cash and securities accounts for both parties) market, which represents a significant part of the entire U.S. repo market, indicates that U.S. government securities account for approximately 34.7 percent by dollar value of the most common collateral types (see chart below: "Most Common Collateral Used, as Percentage of Total"), Federal agency and government sponsored enterprises securities (for example, Fannie Mae and Freddie Mac) account for approximately 6 percent, non-agency mortgage-backed and asset-backed securities nearly 3.9 percent, and agency mortgage-backed securities and collateralized mortgage obligations account for 44.8 percent. In addition, corporate bonds represent 3.5 percent, equities 4.5 percent, money markets 1.4 per-cent and other (which includes collateralized debt obligations, international securities, municipality debt, and whole loans) account for 1.2 percent.
- Robert Toomey
- Analyst: Timothy Cummings