- Activity has been driven by stock market rallying to new highs
- Pressures already seen in US Treasury-backed repo market
A rise in funding costs is spilling into the market for repurchase agreements backed by equities, a phenomenon that’s unlikely to abate, according to J.P. Morgan, writes Bloomberg.
The amount of equity collateral that dealers need to finance the repo market has swelled, driven by the benchmark S&P 500 Index rallying to new highs and robust investor demand for leverage equity exposure. As a result, the total amount of primary-dealer equity financing in repos has hit the highest level since April 2013, according to the most recent Federal Reserve Bank of New York data.