The Importance of Being Special: Repo Markets During the Crisis

66 Pages Posted: 27 Jun 2017

See all articles by Stefano Corradin

Stefano Corradin

European Central Bank (ECB)

Angela Maddaloni

European Central Bank (ECB)

Date Written: May 19, 2017

Abstract

Specialness - the premium of procuring a specific security in the repo market - increased in the second half of 2011 for Italian government bonds. We assess the impact on specialness of the outright purchase program of the Eurosystem during the same period. Bonds bought by the Eurosystem had higher specialness. The impact was economically significant and persistent. Short-selling traders had to pay a net premium to close their positions and therefore may have decided to fail on their delivery. Indeed bonds that were bought under the program were more likely to be underlying a fail-to-deliver transaction.

Keywords: Repo, Specialness, Central bank asset purchases, Short-selling

JEL Classification: E43, E51, G01, G12, G23

Suggested Citation

Corradin, Stefano and Maddaloni, Angela, The Importance of Being Special: Repo Markets During the Crisis (May 19, 2017). ECB Working Paper No. 2065. Available at SSRN: https://ssrn.com/abstract=2992516

Stefano Corradin (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Angela Maddaloni

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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