Finadium: US Repo Participants on Market Conditions and Prospects for 2021

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. We asked each participant about liquidity, spreads, Federal Reserve actions, sponsored repo and electronic trading, looking at current conditions and expectations for 2021. The result is a view of US repo including representation from all important user groups.

The intervention of the Federal Reserve in US repo over the last year has created unprecedented liquidity to prevent market disruptions. It also has consequences. While any participant with Fed access can place cash or finance their securities if no other liquidity exists, this peace of mind comes with caveats. Spreads may be compressed, trading strategies may be limited and pricing may not be ideal compared to other products.

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.

A direct link to the report for Finadium research clients is https://finadium.com/finadium-report-desc/us-repo-participants-on-market-conditions-and-prospects-for-2021/

For non-subscribers, more information is available here.

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