Special Repo Rates: An Empirical Analysis

Abstract

Duffie (1996) examines the theoretical impact of repo “specials” on the prices of Treasury securities and concludes that, all else the same, an issue on special will carry a higher price than an otherwise identical issue. We examine this hypothesis and find strong evidence in support of it. We also examine whether the liquidity premium associated with “on‐the‐run” issues is due to repo specialness and find evidence of a distinct effect. Finally, we investigate whether auction tightness and percentage awarded to dealers are related to subsequent specialness and find that both variables àre generally significant.

Valuation in Over-the-Counter Markets

“…Empirical evidence of the impact on treasury prices and securities-lending premia ("repo specials") can be found in Duffie (1996), Jordan and Jordan (1997), and Krishnamurthy (2002), who estimates that much of the on-therun price premia in 30-year issues has been due, on average, to repo specials. Lending "specials" in equity markets are measured by Geczy, Musto, andReed (2002), D'Avolio (2002), and Jones and Lamont (2002).…”

A No-Arbitrage Analysis of Macroeconomic Determinants of the Credit Spread Term Structure

“…For example, the Treasury market has been found to contain a liquidity component that lowers the Treasury yield when the Treasury supply declines during eras of budget surplus (Feldhütter and Lando 2005, Jordan and Jordan 1997, Longstaff et al 2005. Bikbov and Chernov (2006) and Dai and Philippon (2004) find that fiscal policy variables help explain the Treasury term structure.…”

Anatomy of a Market Crash: A Market Microstructure Analysis of the Turkish Overnight Liquidity Crisis

“…More generally, repos are studied by e.g. Duffie (1996) and Jordan and Jordan (1997) who focus on the special repo rate. Hartmann et al (2001) study the microstructure of the overnight euro money market.…”