OFR Short-term Funding Monitor - Insights

Rates

Interest rates measure the cost of funding. They can act as indicators both of short-term costs of capital for financial intermediaries and of stress in funding markets. These charts present interest rates across various short-term funding markets and types of funding.

Repo returns by venue

Mean rates on repurchase agreements by venue: GCF Repo Service, DVP Service, and tri-party repo

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The market for repurchase agreements (repo) supports short-term liquidity and price discovery by allowing financial institutions to lend or borrow cash, usually overnight, with securities as collateral. Repo venues vary on the extent to which participants know their counterparty, the extent to which they know the specific security being used as collateral, and whether their trades are cleared by a central counterparty.

The OFR collects data on three venues for repo transactions. The first is the tri-party market. In tri-party repurchase (repo) transactions, participants know their counterparty, but transact against classes of collateral, rather than specific securities. As a result, tri-party repo is used only for financing, and not for obtaining specific securities. A custodian, usually a bank, maintains post-trade processing activities such as collateral selection, payments and deliveries, custody of collateral securities, and collateral management. Borrowers in tri-party tend to be larger dealers to which cash lenders are willing to be directly exposed. The Federal Reserve has used tri-party repos on occasion to deliver liquidity to dealers in times of market stress.

The second venue is the Fixed Income Clearing Corporation's (FICC) DVP Service. This is a centrally cleared market in which participants know the specific security used as collateral for a transaction. It contains both unbrokered activity, where participants know their ultimate counterparty, and brokered activity, where participants do not know their ultimate counterparty. Because DVP Service settles on a specific-security basis, some of the activity surrounds securities that lenders want, using DVP Service to gain temporary ownership of the security. Lower-than-usual rates in DVP Service relative to other venues can indicate higher-than-usual demand for specific securities, and could signal illiquidity in the cash market for securities.

The third venue is FICC's GCF Repo Service. This is a centrally cleared market in which participants know neither the specific securities used as collateral nor their counterparty in a transaction. The venue is purely general collateral, so all activity is financing driven. Because it is counterparty-blind, it can be a popular venue for participants concerned about revealing their immediate liquidity needs.

The beginning of the series for DVP and GCF reflect the introductions of the OFR's collection of DVP data in October 2019 and of GCF data in December 2019.

Series Used

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Suggested Citation

Office of Financial Research, “OFR Short-term Funding Monitor,” refreshed daily, https://www.financialresearch.gov/short-term-funding-monitor/ (accessed ).