A Short Note on Long-Term Repos

Market Infrastructure Analysis, muRisQ Advisory, October 2018

12 Pages Posted: 24 Oct 2018 Last revised: 30 Apr 2019

See all articles by Marc P. A. Henrard

Marc P. A. Henrard

muRisQ Advisory; OpenGamma; University College London - Department of Mathematics

Date Written: April 2019

Abstract

Current OIS rates and term LIBOR deposit rates are different and the difference has increased with the financial crisis. All derivative users have been well aware of this for the last 10 years. Unsecured overnight benchmarks are being replaced for some currencies by repo based benchmarks - e.g. SOFR in USD - and interbank term lending is now done predominantly on a secured basis through repurchase agreements. What can we say in this new world of the relation between term OIS rates and term (secured) deposits? In this note we prove that, in theory, in a perfectly liquid and perfectly collateralised market, where the benchmark rates can be achieved in practice, the two should be equal.

Keywords: Term Repo, Overnight, Benchmarks, OIS

JEL Classification: G13, G15

Suggested Citation

Henrard, Marc P. A., A Short Note on Long-Term Repos (April 2019). Market Infrastructure Analysis, muRisQ Advisory, October 2018. Available at SSRN: https://ssrn.com/abstract=3258690 or http://dx.doi.org/10.2139/ssrn.3258690

Marc P. A. Henrard (Contact Author)

muRisQ Advisory ( email )

Rue du Chemin de fer, 8
Brussels, 1210
Belgium

HOME PAGE: http://murisq.com

OpenGamma ( email )

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256-260 Old Street
London, EC1V 9DD
United Kingdom

University College London - Department of Mathematics ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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