Repo and RV Rates Trades

NeroTulip · Post by **NeroTulip** » Fri Mar 20, 2020 1:20 am

Repo is more widely used in govies: If you're trading a 20bps on the run / off the run spread, or putting on a 2s10s steepener, you're going to leverage 10-100x to make it exciting (well, that's what lots of traders do). You are going to get your leverage via repo. Not sure how much repo is used in corporates.

Jurassic · Post by **Jurassic** » Fri Mar 20, 2020 9:07 am

@nikol the treasury bond vs future basis trade

nikol · Post by **nikol** » Fri Mar 20, 2020 9:49 am

Massive +bond -futures basis repo-out bond (funding) will impact repo rates. Key is "massive" = high demand. PnL of this strategy depends on repo rate, hence the link. Also, if market goes one side it will put additional liquidity pressure.

@kitno maybe lets make another thread about ASW to discuss it thoroughly? It could be something like "CDS, TRS, ASW and all that stuff". Funding of the balance sheet could be in the center.

Kitno · Post by **Kitno** » Sat Mar 21, 2020 11:08 pm

@nikol, yes please. That would be helpful to many including me.

Jurassic · Post by **Jurassic** » Thu Apr 02, 2020 2:02 pm

If i short the futures first, then I have the cash to buy the govt bond. Therefore, why do I need to enter the repo market?

Why did investors seeking security rush into futures? surely they would go for the cash product?

rickyvic · Post by **rickyvic** » Thu Apr 02, 2020 3:10 pm

I am sorry for not replying to this earlier with all that happened.

asw like govie vs ir swap, futures cross like govie vs bond future, all same maturity.

If you put up the cash you have a really big balance sheet (you are a bank) while most agents dont have that, so they use prime brokers to access repo desks liquidity.

The rest has been explained but think about rates of instruments with similar default risk being heavily interconnected.

Future then you have the cash ? Look it up on the HULL.

Now the implication is that if there is an international sovereign crisis then there could be a default problem, because the whole world is flying to non risky assets, what if non risky assets become risky? They are already.