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
Date Written: April 2019
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: Suggested Citation