Using a novel dataset, we study intraday trades of overnight general collateral repurchase agreements (repos) on Italian government bonds. We focus both on repos cleared by central counterparties (CCPs) and traded bilaterally. Intraday bond supply, liquidity and duration significantly affect the spread of repo rates over the European Central Bank (ECB) deposit rate, but after the ECB quantitative easing interventions this impact is much reduced. During the European sovereign debt crisis, the increase in margins further deteriorates repo costs, creating a negative procyclical effect. Once we control for the impact of margin costs, CCP-based repos do not appear to be significantly cheaper than bilateral repos. We also show that bonds with lower liquidity and specialness, greater supply and longer duration are more likely to be selected as collateral.However, during the crisis, CCP-repo borrowers choose collateral bonds with higher liquidity and lower duration to reduce margin and repo trading costs.
In this paper I show that the co-movements between bid-ask spreads of equities and credit default swaps vary over time and increase over crisis periods. The co-movements are strongly related to systematic risk factors and to the theoretical debt-to-equity hedge ratio. I document that hedging and asymmetric information, besides higher funding costs and market volatility risk, are driving factors of the commonality and are significantly priced in CDS bid-ask spreads.
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