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Repurchase agreements with negative interest rates

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  • Michael J. Fleming
  • Kenneth D. Garbade

Abstract

Contrary to popular belief, interest rates can drop below zero. From early August to mid-November of 2003, negative rates occurred on certain U.S. Treasury security repurchase agreements. An examination of the market conditions behind this development reveals why market participants are sometimes willing to pay interest on money lent.

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Bibliographic Info

Article provided by Federal Reserve Bank of New York in its journal Current Issues in Economics and Finance.

Volume (Year): 10 (2004)
Issue (Month): Apr ()
Pages:

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Handle: RePEc:fip:fednci:y:2004:i:apr:n:v.10no.5

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Keywords: Repurchase agreements ; Interest rates ; Treasury notes;

References

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  1. Frank Keane, 1996. "Repo rate patterns for new Treasury notes," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 2(Sep).
  2. Jones, Charles M. & Lamont, Owen A., 2002. "Short-sale constraints and stock returns," Journal of Financial Economics, Elsevier, vol. 66(2-3), pages 207-239.
  3. Duffie, Darrell, 1996. " Special Repo Rates," Journal of Finance, American Finance Association, vol. 51(2), pages 493-526, June.
  4. Michael J. Flemming, 2000. "Financial Market Implications of the Federal Debt Paydown," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(2), pages 221-252.
  5. Michael J. Fleming & Kenneth D. Garbade, 2002. "When the back office moved to the front burner: settlement fails in the treasury market after 9/11," Economic Policy Review, Federal Reserve Bank of New York, issue Nov, pages 35-57.
  6. Michael J. Fleming, 2001. "Financial market implications of the federal debt paydown," Staff Reports 120, Federal Reserve Bank of New York.
  7. D'Avolio, Gene, 2002. "The market for borrowing stock," Journal of Financial Economics, Elsevier, vol. 66(2-3), pages 271-306.
  8. Mark Fisher, 2002. "Special repo rates: an introduction," Economic Review, Federal Reserve Bank of Atlanta, issue Q2, pages 27-43.
  9. S. Illeris & G. Akehurst, 2002. "Introduction," The Service Industries Journal, Taylor & Francis Journals, vol. 22(1), pages 1-3, January.
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Citations

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Cited by:
  1. Baba, Naohiko & Nishioka, Shinichi & Oda, Nobuyuki & Shirakawa, Masaaki & Ueda, Kazuo & Ugai, Hiroshi, 2005. "Japan's Deflation, Problems in the Financial System, and Monetary Policy," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 23(1), pages 47-111, February.
  2. S├ębastien Kraenzlin, 2007. "The characteristics and development of the Swiss franc repurchase agreement market," Financial Markets and Portfolio Management, Springer, vol. 21(2), pages 241-261, June.
  3. Kenneth D. Garbade & John E. Kambhu, 2005. "Why is the U.S. Treasury contemplating becoming a lender of last resort for Treasury securities?," Staff Reports 223, Federal Reserve Bank of New York.
  4. Kenneth D. Garbade & Matthew Rutherford, 2007. "Buybacks in Treasury cash and debt management," Staff Reports 304, Federal Reserve Bank of New York.
  5. Fleming, Michael J. & Garbade, Kenneth D., 2007. "Dealer behavior in the specials market for US Treasury securities," Journal of Financial Intermediation, Elsevier, vol. 16(2), pages 204-228, April.
  6. Andrei Kapaev, 2013. "Remark on repo and options," Papers 1311.5211, arXiv.org.
  7. W. Douglas McMillin & James S. Fackler, . "Estimating the Inflation-Output Variability Frontier with Inflation Targeting: A VAR Approach," Departmental Working Papers 2007-04, Department of Economics, Louisiana State University.
  8. Michael J. Fleming & Warren B. Hrung & Frank M. Keane, 2009. "The Term Securities Lending Facility: origin, design, and effects," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 15(Feb).
  9. Warren B. Hrung & Jason S. Seligman, 2011. "Responses to the financial crisis, treasury debt, and the impact on short-term money markets," Staff Reports 481, Federal Reserve Bank of New York.

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