November 2020

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The ample liquidity of today’s US repo markets is a mixed blessing, as dealers, cash providers and leveraged investors all look to generate revenues in an environment dominated by Federal Reserve intervention.

For this report, Finadium surveyed 26 repo market participants across dealers, money market funds, hedge funds and REITs to hear their views on market conditions at the end of 2020 and into 2021. The survey, modeled after the Federal Reserve’s Senior Credit Officer Opinion Survey (SCOOS), asked what ample liquidity means for each market actor, reactions to Federal Reserve policy, the outlook on sponsored repo and more.

The diverse needs of repo market participants means that current and expected conditions can be good for one segment but not for others. Most agree though that the current Federal Reserve corridor of 0-15 basis points for repo rates may be overly constrictive. Market participants had a variety of ideas about the ideal solutions; these are detailed in the survey results.

This report should be read by any market participant with a stake in the success of US repo. This includes the types of firms surveyed as well as regulators, policymakers and technology providers. The US repo market is an important part of how capital markets function. The views of market participants themselves say a great deal about how well this is working, and their recommendations should carry weight in how liquidity, spreads and infrastructure could be adjusted for an optimal outcome.

Table of Contents

  • Executive Summary
  • Who Do Repo Markets Serve?
  • What Ample Liquidity Means for Repo Participants
    • – Liquidity and Spreads
  • Reactions to Federal Reserve Policies
    • – Forecasting Regulatory Change
  • Outlook on Sponsored Repo
  • Electronic Trading and STP
  • The Low Interest Rate Future
  • About the Author
  • About Finadium LLC

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