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Financial Industry Research

The Dynamics of the U.S. Overnight Triparty Repo Market

Mark E. Paddrik, Carlos A. Ramírez, and Matthew J. McCormick
This article, published August 2, 2021, in the Federal Reserve Board's FEDS Notes, explores the dynamics in the U.S. repo market.

The overnight segment of the triparty repurchase agreement (repo) market plays a pivotal role in the normal functioning of the U.S. financial system by acting as an important source of secured short-term funding and supporting the liquidity of key fixed income markets, including U.S. Treasury and agency securities. This over-the-counter market accounts for over $1 trillion in daily transactions and provides a unique venue in which a diverse set of market participants invest their cash as well as obtain short-term funding. Despite the importance of the overnight segment, little analysis has been undertaken about its intraday trading and pricing. Using supervisory transaction-level data, this note aims to fill this gap by providing an overview of the pricing and clearing process of this segment. Besides highlighting the relevance of the overnight segment within the greater U.S. repo market, we present novel facts about how this segment behaves, emphasizing the role that participants, collateral, and trading relationships play in its pricing and clearing process.

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About the Authors

Mark E. Paddrik is a senior researcher at the Office of Financial Research.

Carlos Ramírez is a senior economist in the Systemic Financial Institutions and Markets Section at the Federal Reserve Board.

Matthew J. Mccormick financial sector advisor in the Supervisory Risk and Surveillance division of the Federal Reserve Bank of Dallas.