Finadium, the global research and consulting firm in securities finance, collateral and derivatives, today announced the launch of its US Treasury Repo Benchmarking (UST Repo Benchmarking) service for cash and collateral providers. UST Repo Benchmarking is delivered in partnership with DTCC’s Treasury Kinetics data service.
“UST Repo Benchmarking allows money market funds, securities lending cash collateral pools and other cash providers, as well as hedge funds and other collateral providers, to track best execution in the US Treasury Repo space,” said Josh Galper, Managing Principal of Finadium. “As US interest rates rise and spreads widen, and settlement venues expand to include CCPs and Peer to Peer, validating UST repo rates alongside operational costs adds meaningful value to market participants.”
Finadium’s UST Repo Benchmarking starts at the collateral level. Rates can be benchmarked by counterparty, settlement venue, specials vs. General Collateral, fail rates, time of day and other metrics. Results can be incorporated into portfolio strategy, trading decisions and collateral management operations more broadly. UST Repo Benchmarking adds to Finadium’s existing quantitative and qualitative benchmarking services in global securities lending.
Why benchmark repo rates?
Rising US interest rates mean that repo rates may see greater variation, and already this is evident in the spread between triparty and bilateral repo rates. US interest rates under 10 bps mean that repo rates have little room to move, but an Effective Federal Funds Rate of 33 bps and SOFR at 27-30 bps mean that spreads have room to widen. The ability to benchmark repo rates for any market participant on a periodic basis can help cash and collateral providers evaluate how they are being priced and their standing in the repo market according to multiple metrics.
Finadium’s UST Repo Benchmarking starts with collateral to ensure that benchmarking is conducted at the most appropriate level – by security where risk exposure is greatest. Establishing a starting point in determining variations from an industry average for both General Collateral and single name collateral transactions, then tracking that variance over time, provides important information to cash and collateral providers about their trading strategies, counterparties and optimal repo servicing venues, whether bilateral at dealers, on CCPs or in Peer to Peer.
Repo benchmarking results have a wide range of applications, starting with demonstrating best execution internally and externally. While individual transactions are frequently optimally priced with specific counterparties, an evaluation of collateral, trading times, counterparties and execution venues can quickly deliver value by helping cash and collateral providers know their options. Starting with detailed data at the collateral level, the Finadium UST Repo Benchmarking service can assist a wide range of market participants improve their repo returns and lower financing costs.
For more information on UST Repo Benchmarking, please contact Finadium at info@finadium.com.
For more on US repo data, see the Finadium October 2021 report, Building Out Repo Data for New Industry Needs, freely available courtesy of DTCC.