Finadium has produced a primer and analysis of repo benchmarks as a LIBOR replacement. While often seen as risk-free, repo benchmarks require a careful understanding to evaluate their opportunities and potential pitfalls. This report has been written for a broad capital markets audience.
On June 22, 2017, the Federal Reserve’s Alternative Reference Rates Committee made its long-awaited announcement: a US Treasury repo rate is the preferred replacement for LIBOR. This decision has now had ripple effects around the world, with dealers and investors beginning to prepare for a new era in financial markets. The move also comes as the European Money Markets Institute starts to finalize plans for its own repo benchmark.
The adoption of repo benchmark rates to replace LIBOR is not perfect however. There are issues to consider in the formulation of the rate, how it will differ from a revamped LIBOR calculation, and repo volumes themselves. We expect potential price volatility concurrent with government intervention in the market. As with any new index, especially a critical interest rate benchmark, understanding how the product works is critical for future success.
This report is part of the Investor Focus series, the Securities Finance, Collateral and Derivatives series and the Fixed Income series. These research subscribers can log in here to access this report. All others may visit the Finadium reports website for report details.