Implied repo rate

Implied Repo Rate IRR is the rate of return of borrowing money to buy an asset in the spot market and delivering it in the futures market where the notional is used to repay the loan.

Simplified closed form

IRR = ( frac ext{InvoicePrice} ext{PurchasePriceOfBond} -1 )( frac ext{dayBase} ext{daysToDelivery} )

Where

dayBase is 365 or 360

Usage


= Determine the Cheapest To Deliver asset =

To determine the cheapest bond in a basket of deliverable bonds against a futures contract, implied repo rate is computed for each bond; the bond with the highest repo rate is the cheapest. It is the cheapest because it has the lowest initial value to yield a higher return provided it is delivered with the stated futures price.

The net basis between a futures price and its underlying bonds may provide an indication of which bond is the cheapest. However, since the method, unlike the IRR method, neglects the actual running cost of bonds, it is less accurate as a measury for CTD ranking.

References

* [http://www.yieldcurve.com/Mktresearch/files/FuturesBondBasis_Part2.pdf Futures Bond Basis]


Wikimedia Foundation. 2010.

Look at other dictionaries:

  • Implied Repo Rate — The rate of return that can be earned by simultaneously selling a bond futures or forward contract and then buying an actual bond of equal amount in the cash market using borrowed money. The bond is held until it is delivered into the futures or… …   Investment dictionary

  • implied repo rate — The rate that a seller of a futures contract can earn by buying an issue and then delivering it at the settlement date. Related: cheapest to deliver issue. Bloomberg Financial Dictionary The rate of return before financing costs implied by a… …   Financial and business terms

  • Implied repo rate — The rate that a seller of a futures contract can earn by buying an issue and then delivering it at the settlement date. Related: cheapest to deliver issue …   Financial and business terms

  • repo — re·po / rē ˌpō/ n pl repos 1: repurchase agreement 2: repossession Merriam Webster’s Dictionary of Law. Merriam Webster …   Law dictionary

  • repo agreement — Repo is short for a repurchase agreement or a sale and repurchase agreement where one party sells a security to another party for cash and agrees to repurchase it on a specified date for a specified price. The interest rate implied from this… …   Law dictionary

  • Official bank rate — The official bank rate (also called the Bank of England base rate[1] or BOEBR) is the interest rate that the Bank of England charges Banks for secured overnight lending. It is the British Government s key interest rate for enacting monetary… …   Wikipedia

  • Cheapest to deliver issue — The acceptable Treasury security with the highest implied repo rate; the rate that a seller of a futures contract can earn by buying an issue and then delivering it at the settlement date. The New York Times Financial Glossary …   Financial and business terms

  • cheapest to deliver issue — The acceptable Treasury security ( Treasury securities) with the highest implied repo rate; the rate that a seller of a futures contract can earn by buying an issue and then delivering it at the settlement date. Bloomberg Financial Dictionary …   Financial and business terms

  • Подразумеваемая ставка репо — проценты, которые может заработать продавец фьючерсного контракта посредством покупки ценных бумаг и их последующей поставки в расчетный день. По английски: Implied repo rate См. также: Фьючерсные сделки Финансовый словарь Финам …   Финансовый словарь

  • United Kingdom — a kingdom in NW Europe, consisting of Great Britain and Northern Ireland: formerly comprising Great Britain and Ireland 1801 1922. 58,610,182; 94,242 sq. mi. (244,100 sq. km). Cap.: London. Abbr.: U.K. Official name, United Kingdom of Great… …   Universalium

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.