Repo has the widest application of almost any instrument within the financial markets. The market provides financing efficiencies, yield enhancement, liquidity, price discovery and transparency to a broad array of asset classes, from the highly commoditised to the esoteric. The liquidity and flexibility of repo attracts a wide cross section of participants, including commercial and investment banks, asset managers and corporate treasurers.
Financial institutions lending their assets via repo achieve enhanced portfolio returns through lower financing rates and volatility than the unsecured cash market. Investors needing to place cash holdings can precisely tailor their requirements through repo, taking advantage of its security, flexibility and most importantly its simplicity. As a money market instrument, repo enables market participants to express views on short-term interest rates, collateral types, specific issuers and bond issues. Repo is a major component in the Fixed Income market, as the key determinant in pricing underlying assets, particularly in hedging and in correctly trading the basis between onand off-balance sheet instruments in the government, corporate and asset-backed bond and derivatives markets.
Exponential growth in volumes, evolving scope and its huge importance in the efficient functioning of debt capital markets necessitate a wider understanding of the product. Repo differentiates itself from other financial products in that practitioners need ...