The U.S. repo market has come under the spotlight in the past couple of days as surging short-term interest rates are causing some stress for overnight funding on Wall Street, reminiscent of the 2019 funding crisis.
A repo — or, to give its full name, a repurchase agreement — is an overnight trade in government securities where a dealer sells the securities to investors and buys them back the next day for a slightly higher price. Such trades are typically used to raise short-term capital — the dealer is effectively borrowing money overnight from investors, or lenders.
The repo market is an important facet of the short-term funding habits of banks, and stresses in the market started showing up last month following the surge in bond buying in November as increased demand for short-term repo lending ...