Repo explained: overnight collateralised funding markets
By Ken Chigbo, Founder, KenMacro. Published 2026-05-12.
Quick answer
Repo (repurchase agreement) is a short-term collateralised loan in which one party sells a security (typically a US Treasury) and agrees to repurchase it at a slightly higher price the next day. The price difference is the repo rate, the cost of overnight funding. Repo markets transact roughly 4 trillion US dollars daily and underpin the entire dollar funding system.
Quick answer
Repo (repurchase agreement) is a short-term collateralised loan in which one party sells a security (typically a US Treasury) and agrees to repurchase it at a slightly higher price the next day. The price difference is the repo rate, the cost of overnight funding. Repo markets transact roughly 4 trillion US dollars daily and underpin the entire dollar funding system.
What is repo?
A repurchase agreement (repo) is a transaction in which one party sells a security to another with a simultaneous agreement to buy it back the next day at a slightly higher price. Economically, repo is a collateralised loan: the seller (cash borrower) receives cash and posts the security as collateral; the buyer (cash lender) earns the price differential as interest. The dominant collateral type is US Treasuries, which is why the Treasury market and repo market are structurally connected. Repo terms run from overnight (most common) to several months. Daily repo transaction volume averages around 4 trillion US dollars across tri-party, FICC bilateral, and FICC GCF segments. SOFR is calculated from a subset of repo transactions.
How traders use repo
Macro traders monitor repo for two primary signals. First, the level of the repo rate against the Fed funds target indicates short-end liquidity conditions; a repo rate spiking above the upper bound of the Fed funds target (as happened in September 2019) signals funding stress and typically triggers Fed intervention. Second, the spread between secured repo (collateralised) and unsecured short-term lending (commercial paper, Eurodollars) widens during credit stress; the spread is a leading indicator of broader risk-off. The Federal Reserve operates two key repo facilities: the standing repo facility (SRF, which lends cash against Treasury collateral) and the reverse repo facility (RRP, which absorbs excess cash from money market funds). Both are visible on the Fed’s H.4.1 release and on the desk’s macro reading.
ASIC and FSCA regulation. Cent-account option for small balances. Leverage up to 1:1000 on the offshore entity for the high-leverage archetype.
Worked example with repo
Consider a hedge fund that owns 100 million US dollars of 10-year Treasuries and wants to lever the position. The fund enters into an overnight repo, selling the Treasuries to a money market fund for 99.8 million in cash (a small haircut) with an agreement to buy them back the next day at 99.802 million. The price differential of 2,000 dollars represents the overnight repo rate (roughly 4.0 per cent annualised on the 99.8 million principal for one day). The fund retains economic exposure to the Treasuries while raising 99.8 million in cash for additional positions. Multiply by thousands of similar transactions daily and the result is the 4 trillion dollar US repo market.
Related from the desk
Frequently asked
What is the difference between repo and reverse repo?
Repo and reverse repo describe the same transaction from opposite sides. A repo from the borrower’s perspective (selling securities, taking cash) is a reverse repo from the lender’s perspective (receiving securities, providing cash). The Fed’s RRP facility (reverse repo) absorbs excess cash from money market funds. The SRF (standing repo facility) lends cash against Treasury collateral.
When does repo signal financial stress?
Repo signals stress when the repo rate spikes above the upper bound of the Fed funds target (as in September 2019, when overnight repo touched 10 per cent), when the spread between secured repo and unsecured short-term lending widens sharply, or when collateral haircuts increase. Each is a leading indicator of broader risk-off and typically triggers Fed intervention.
Where can I see daily repo rates?
Daily SOFR (calculated from repo) is published at 08:00 New York time by the Federal Reserve Bank of New York. The Fed’s H.4.1 release (weekly) tracks the SRF and RRP balances. Bloomberg, Reuters Eikon, and the KenMacro daily desk read provide repo-rate context when relevant to the macro setup.
Related from the desk
Educational analysis only. Past performance does not guarantee future results. Manage risk against your own portfolio.
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