Anatomy of the Repo Rate Spikes in September 2019

24 Pages Posted: 26 Apr 2023

See all articles by Mark E. Paddrik

Mark E. Paddrik

Government of the United States of America - Office of Financial Research

H. Peyton Young

Government of the United States of America - Office of Financial Research

R. Jay Kahn

Board of Governors of the Federal Reserve System

Matthew McCormick

Federal Reserve Banks - Federal Reserve Bank of Dallas; Government of the United States of America - Office of Financial Research

Vy Nguyen

U.S. Department of the Treasury

Date Written: April 25, 2023

Abstract

Repurchase agreement (repo) markets represent one of the largest sources of funding and risk transformation in the U.S. financial system. Despite the large volume, repo rates can be quite volatile, and in the extreme, they have exhibited intraday spikes that are 5-10 times the rate on a typical day. This paper uses a unique combination of intraday timing data from the repo market to examine the potential causes of the dramatic spike in repo rates in mid-September 2019. We conclude that the spike resulted from a confluence of factors that, when taken individually, would not have been nearly as disruptive. Our work highlights how a lack of information transmission across repo segments and internal frictions within banks most likely exacerbated the spike. These findings are instructive in the context of repo market liquidity, demonstrating how the segmented structure of the market can contribute to its fragility.

Keywords: Repurchase agreements, financial intermediation, market segmentation, short-term funding, rate spikes

JEL Classification: G14, D40, D82

Suggested Citation

Paddrik, Mark Endel and Young, H. Peyton and Kahn, R. Jay and McCormick, Matthew and Nguyen, Vy, Anatomy of the Repo Rate Spikes in September 2019 (April 25, 2023). OFR 23-04, Available at SSRN: https://ssrn.com/abstract=4429526 or http://dx.doi.org/10.2139/ssrn.4429526

Mark Endel Paddrik (Contact Author)

Government of the United States of America - Office of Financial Research ( email )

717 14th Street, NW
Washington DC, DC 20005
United States

H. Peyton Young

Government of the United States of America - Office of Financial Research ( email )

717 14th Street, NW
Washington DC, DC 20005
United States

R. Jay Kahn

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Matthew McCormick

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Government of the United States of America - Office of Financial Research ( email )

717 14th Street, NW
Washington DC, DC 20005
United States

Vy Nguyen

U.S. Department of the Treasury ( email )

1500 Pennsylvania Avenue
Washington, DC 20220
United States

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