OFR Short-term Funding Monitor - Market Digests


The tenor of a financial contract refers to the amount of time before that contract expires. Tenor aggregates can be used to examine the provision of funding over different time horizons. These charts present insights into the tenor of financing across various short-term funding markets.

Primary dealer repo and securities borrowing by tenor

Aggregate outstanding volume in repo and securities lending for primary dealers broken out by tenor

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Primary dealers serve as intermediaries in securities markets, receiving securities from sellers and delivering them to buyers. They also serve a unique role in purchasing Treasury securities at auction and acting as a counterparty to the Federal Reserve. Dealers, who have large inventories of securities to finance, are an important borrower in repo markets. In a repo transaction, dealers borrow cash on a short-term basis while delivering securities as collateral. Securities lending is an alternative to repo financing. Similar to repo borrowing, in securities lending primary dealers lend securities to borrowers, often on a short-term basis. A key difference between securities lending and repo is that securities lending contracts tend to allow lenders to recall the underlying security at will, which makes securities lending convenient for equity holders who want the option to exercise voting rights. As a result, securities lending tends to be more common with equity instruments, while repo tends to be more common with fixed-income instruments.

This chart shows a breakdown of primary dealer securities lending and repo positions by tenor. Tenor is the amount of time between the initial trade of cash for securities and the repurchase of those securities. Primary dealers' financing needs can vary by time horizon, leading to demand for loans of a different tenor. Shorter-tenor trades maximize lenders' liquidity, typically reducing rates primary dealers have to pay. However, when primary dealers borrow in shorter-tenor trades, they carry the risk that financing rates increase or that financing becomes unavailable, which is referred to as rollover risk. Examining volume across tenors for primary dealers provides a window into the availability of and demand for financing across time horizons. In periods of high volatility, longer-tenor trades can provide more stability to borrowers, but during these times lenders that want to keep cash liquid may not want to extend credit at longer horizons.

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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 ).