Hurricane Irene Threat Spurs Repo Traders to Extend Maturities – Bloomberg

By Liz Capo McCormick
Aug. 26 (Bloomberg) — Rates for borrowing and lending securities in the repurchase-agreement market rose and investors sought to extend maturities on concern power outages and closings of mass transit will keep traders home after Hurricane Irene strikes.

Overnight general collateral Treasury repurchase, or repo, rates, opened today at 0.10 percent and traded at 0.13 percent at 10 a.m. New York time, according to data from ICAP Plc, the world’s largest inter-dealer broker.

Securities dealers use repos to finance holdings and increase leverage. The majority of repo transactions take place on an overnight basis, with those current funding positions maturing on Aug. 29. Diminished staffing and computer-related problems following the hurricane may make it difficult to roll over such transactions.

“Traders want to fund some of their positions through Tuesday — expecting some co-workers might be out on Monday — to ease the funding burden in case they are short-staffed,” said Scott Skyrm, senior vice president and head of repo and money markets at NewEdge USA LLC in New York.

Transportation agencies in the New York City metropolitan area plan to begin halting service at noon tomorrow. More than 65 million people from North Carolina to Maine, or about one in five Americans, may be in the storm’s path.

Securities that can be borrowed at interest rates close to the Federal Reserve’s target rate are called general collateral. Those in highest demand have lower rates and are called “special.”

Repo Average Level

The average level of overnight general collateral repo rates traded through 10 a.m. New York time today with ICAP was 0.06 percent today, up from a 0.05 percent average yesterday, and 0.01 percent the day before that.

“Given there is a chance that on Monday some people can’t get into the office due to the hurricane, it is prudent to get some longer-term funding locked up over the weekend,” said Thomas Simons, a government-debt economist in New York at Jefferies Group Inc., one of the primary dealers that trade directly with the Fed. “There is no indication of any type of panic in the markets.”

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