SCHQ - Was The September Repo Spike An Anomaly?
The news media, bank executives, the U.S. Federal Reserve (the Fed) chairman and even presidential candidates have made remarks about the recent spike in short-term funding rates. What caused the spike, and why is it important?
In mid-September, there was a significant spike in the overnight repurchase agreement (repo) rate. The repo rate reflects the level where lenders (e.g., institutional investors and banks) will extend collateralized cash loans to borrowers (e.g., broker-dealers and other market participants) to meet short-term funding needs. The repo market is like the oil that keeps the financial engine running by