Are Repo Markets Fragile? Evidence from September 2019

Abstract

We show that the segmented structure of the U.S. Treasury repo market, in which some participants have limited access across the segments, leads to rate dispersion, even in this essentially riskless market. Using confidential data on repo trading, we demonstrate how the rate dispersion between the centrally cleared and over-the-counter (OTC) segments of the Treasury repo market was exacerbated during the stress episode of September 2019. Our results highlight that, while segmentation can increase fragility in the repo market, the presence of strong trading relationships in the OTC segment helps mitigate it by reducing rate dispersion.

Shedding Light on the Dynamics of the Secured Overnight Financing Rate (SOFR)

“…Firstly, we observe a spike in the SOFR-EFFR spread (and SOFR-IOER spread) at the end of each month. This phenomenon appears to correspond to periods of cash shortages and balance-sheet constraints, as discussed by Klingler and Syrstand (2021), and Anbil et al (2021). Secondly, we find a significant association between SOFR and Federal Reserve interventions in the repo market.…”

Intermediation in Us and EU Bond and Swap Markets: Stylised Facts, Trends and Impact of the Coronavirus (Covid-19) Crisis in March 2020

“…18 See Tarullo (2019) for a discussion on the causes and policy consequences of the repo turmoil. See Anbil et al (2021) for more details on the US repo market. 19 Data as of end-2021.…”

Macro-Prudential Stress Test Models: A Survey

“…This reflects the significant growth in collateralised funding markets in the past decade. Furthermore, repo markets have displayed signs of fragility during recent stress episodes, such as that which occurred in the US repo market in September 2019 (Anbil et al (2021)) and the COVID-19 dash for cash episode in March 2020 (Hüser et al (2021)). Here we focus on direct contagion channels via funding-liquidity channels, including in collateralized funding markets, but reserve a separate broader discussion on channelsincluding indirect contagion -involving collateral (see Section 3.4).…”