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Expected repo specialness costs and the Treasury auction cycle


Abstract: Repo rates for the most recently issued or \\"on-the-run\\" securities often diverge from general repo rates. The purpose of this study is to convey that relatively sizable divergences in repo rates for on-the-run issues are normal repeating events for the Treasury market, rather than evidence of abnormal circumstances. The costs associated with these repo market premia are small for short holding periods and are sometimes offset by gains from declining cash market premia for longer holding periods. Moreover, repo specialness costs seem small when considered against the alternative of not using the repo market.

Keywords: Treasury notes; Repurchase agreements; Hedging (Finance);

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Research Paper

Publication Date: 1995

Number: 9504