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Anatomy of the Repo Rate Spikes in September 2019

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Abstract

Repurchase agreement (repo) markets represent one of the largest sources of funding and risk transformation in the US financial system. Despite the large volume, repo rates can be quite volatile, and in the extreme, they have exhibited intraday spikes that are five to 10 times the rate on a typical day. This paper uses a unique combination of intraday timing data from the repo market to examine the potential causes of the dramatic spike in repo rates in mid-September 2019. We conclude that, in large part, the spike resulted from a confluence of factors that, when taken individually, would not have been nearly as disruptive. Our work highlights how a lack of information transmission across repo segments and stickiness in customer-to-dealer markets most likely exacerbated the spike. These findings are instructive in the context of repo market liquidity, demonstrating how the segmented structure of the market can contribute to its fragility.

Suggested Citation

  • Kahn, R. Jay & McCormick, Matthew & Nguyen, Vy & Paddrik, Mark & Young, H. Peyton, 2023. "Anatomy of the Repo Rate Spikes in September 2019," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 5(4), pages 1-25, July.
    • Handle: RePEc:ysm:ypfsfc:v:5:y:2023:i:4:p:1-25
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    References listed on IDEAS

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    1. Han, Song & Nikolaou, Kleopatra & Tase, Manjola, 2022. "Trading relationships in secured markets: Evidence from triparty repos," Journal of Banking & Finance, Elsevier, vol. 139(C).
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    3. Samuel Hempel & R. Jay Kahn, 2021. "Negative Rates in Bilateral Repo Markets," Briefs 21-03, Office of Financial Research, US Department of the Treasury.
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    More about this item

    Keywords

    financial intermediation; market segmentation; rate spikes; repurchase agreements; short-term funding;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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