Are Repo Markets Fragile? Evidence from September 2019
58 Pages Posted: 14 Jun 2021 Last revised: 30 Jun 2021
Date Written: April, 2021
We show that the segmented structure of the U.S. Treasury repo market, in which some participants have limited access across the segments, leads to rate dispersion, even in this essentially riskless market. Using confidential data on repo trading, we demonstrate how the rate dispersion between the centrally cleared and over-the-counter (OTC) segments of the Treasury repo market was exacerbated during the stress episode of September 2019. Our results highlight that, while segmentation can increase fragility in the repo market, the presence of strong trading relationships in the OTC segment helps mitigate it by reducing rate dispersion.
JEL Classification: E52, G10, E43, G23
Suggested Citation: Suggested Citation