By Moorad Choudhry

The Repo guide, moment Edition provides an outline of repo cars and markets with enough intensity for these looking distinctive motives. In 3 elements it demonstrates how those secured loans healthy into international capital markets and why they account for as much as 50% of day-by-day cost task in non-US executive bonds world wide. This new version replaces previous examples and introduces new advancements, corresponding to based finance repo and linked themes akin to Basel II regulatory ideas. additionally, 12 of 18 chapters characteristic new sections and four were considerably rewritten. the united kingdom gilt and US Treasury repo markets are explored via labored examples, and there are new sections on investment arbitrage trades, possibility exposures, and regulatory capital. It also areas repo in context inside of financial institution asset-liability administration and buying and selling strategies, illustrating repo use throughout quite a lot of purposes within the international funds markets. hardly pointed out within the monetary press a result of uncomplicated, simple nature of the device, repo was once frequently the single investment resource to be had to banks over the last region of 2008 and the 1st in 2009. This booklet, written by means of a dealer, will draw new recognition to this important and effective investment and funding product.

  • Describes repo tools, which entice marketplace members due to their simplicity and malleability
  • Explains the institutional therapy of repos, specially when it comes to threat, accounting, tax and felony concerns, and fairness repo
  • Details the govt bond foundation, implied repo expense, and foundation trading

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Additional info for The REPO Handbook, Second Edition (Securities Institute Global Capital Markets)

Example text

C 1 M ¼ 1ÀÀ þÀ Á Á2N : 1 2N r 1 þ 2r 1 þ 12 r ¼ À ð2:13Þ Note how we set 2N as the power by which to raise the discount factor, as there are two interest payments every year for a bond that pays semi-annually. We also adjust the discount rate, r, by 12. A more convenient exponential function to use might be the number of interest periods in the life of the bond, as opposed to the number of years to maturity, which we could set as n, allowing us to alter the equation for a semi-annually paying bond to: !

This approach is in effect the duration calculation for a single bond. Portfolio duration has the same application as duration for an individual bond, and can be used to structure an immunised portfolio. 3 Modified Duration Although it is common for newcomers to the market to think intuitively of duration much as Macaulay originally did, as a proxy measure for the time to maturity of a bond, such an interpretation is to miss the main point of duration, which is a measure of price volatility or interest rate risk.

The current yield is useful as a “rough-and-ready” interest rate calculation; it is often used to estimate the cost of, or profit from, a short-term holding of a bond. For example, if other short-term interest rates such as the one-week or three-month rates are higher than the current yield, holding the bond is said to involve a running cost. This is also known as negative carry or negative funding. The term is used by bond traders and market makers and leveraged investors. The carry on a bond is a useful measure for all market practitioners as it illustrates the cost of holding or funding a bond.

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