Why Treasury Bills are more valuable than cash in the Repo markets?

Discussion in 'Fixed Income' started by Daal, Jul 17, 2021.

  1. Daal


    I was reading this article about T-Bills and repo

    But I still dont get it why T-bills seem to be at a premium vs cash on repo. The dealers and banks have accounts at the Fed, so the counterparty to their cash positions is the Fed and the counterparty for T-Bills is the Treasury, both are pretty unlikely to default. They seem like almost perfect substitutes
    Last edited: Jul 17, 2021
    kmiklas likes this.
  2. Repoguy


    First off these are the markets I trade and have for a long time.

    Now, the market/ buyers of Treasury Bills is vast.
    Currently any bill say under 6 months to maturity with a yield greater than .05 is purchased by money funds or banks that have access to the Fed's RRP program. So their risk free investment hurdle is .05 (fed RRP rate).
    This leave everyone else...ie foreign institutions, state and local governments, corporate, etc as buyers needing bils/collateral. These buyers when buying in the secondary market will have to pay a lower rate than .05 mostly around .04 currently.

    Also feeding into this is the overnight repo levels that are available to these secondary institutions. Currently on gc repo for customers is .03/.02. These customers are buying bills at .04/.035 because their risk free repo hurdle is .03.

    Hope this helps.
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  3. Girija


    By lowering yield on T bill banks can get higher rate from lending. Holding cash is useless for them.
  4. taojaxx


    Guy has a way of taking something complicated and making it totally unintelligible lol. Conflating two totally different issues: 3 month Tbills yields turning negative because dearth of collateral (Mostly because Treasury is running down its account at the Fed rather than issuing Tbills) and 10 to 30 Y yields moving down despite "transitory?" inflation number.
    In the end, he concludes nothing but throws "deflation" and "sinister puppet show and corruption" here and there.
    That's what it takes to be featured in ZeroEdge.
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  5. piezoe


    I found the zerohedge article unreadable.
    taojaxx likes this.
  6. Daal


    According to Long, Bills are more valuable than cash in repo because they can be rehypotecated multiple times and cash can't
  7. bone

    bone ET Sponsor

    You have to post US Sovereign Debt as collateral for a repo loan.

    Simple as that.