How to calculate implied repo rate
To determine the cheapest bond in a basket of deliverable bonds against a futures contract, implied An implied repo rate is the rate of return that can be earned by owning a bond and simultaneously shorting a futures or forward contract against it. This strategy fewer go the final step to compute the implied repo rate inherent in the differential between the futures price and the price of the deliverable bond. Despite some Implied repo rate (IRR). Tags: bonds pricing and analysis. Description. Formula for the calculation of the implied repo rate. Implied repo rate (IRR) refers to the rate resulting from a cash/futures arbitrage. contract, would calculate the expected return (dividends plus futures basis) as
5 May 1993 This article provides the causes and symptoms of special repo rates in a competitive annual interest rate; details on this calculation method are given in the next implied by Proposition 1 will apply in this example as well.
fewer go the final step to compute the implied repo rate inherent in the differential between the futures price and the price of the deliverable bond. Despite some Implied repo rate (IRR). Tags: bonds pricing and analysis. Description. Formula for the calculation of the implied repo rate. Implied repo rate (IRR) refers to the rate resulting from a cash/futures arbitrage. contract, would calculate the expected return (dividends plus futures basis) as Excellent questIon. Please re,ember the implied repo rate is calculate with respect to the relationship between the futures contract and one of the basket of
the federal funds rate and the Treasury general collateral (GC) repo rate, or the rate 8Some market observers attempt to estimate the size of the repo market; refer to 2008 curve, suggesting that at any recovery rate, the implied probablity of
Once these two assumptions are set, calculating implied repo rates is trivial. Setting these two assumptions is of course an art. Overall, it's not all that different from analyzing any bond auction – you calculate a yield spread to the current on-the-runs, accounting for curve, liquidity premium, carry, and bad days. Implied Repo rate = [ (futures invoice price/Bond Purchase price) -1 ] x 360/actual Future invoice = Forward Price * conversion factor + AI at future date = dirty price Bond Purchase Price = full cost include Accr Interest at settlement date= billing price 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. yields and calculating the implied repo rate for each bond in the deliverable basket at the new yield. A comparison of implied repo rates can then be made to determine whether a different bond is cheaper to deliver given the changed yield levels. Table 2 depicts this analysis for 25 basis point incremental changes in yield all the way up to +200 bps.
Implied repo rate= [ (full cost of underlying/futures invoice price) - 1 ] x 360/actual To confirm my understanding, let's say there are some 30yr Treasury bond futures expiring on March 20, 2020 (for example, ZB).
Once these two assumptions are set, calculating implied repo rates is trivial. Setting these two assumptions is of course an art. Overall, it's not all that different from analyzing any bond auction – you calculate a yield spread to the current on-the-runs, accounting for curve, liquidity premium, carry, and bad days. Implied Repo rate = [ (futures invoice price/Bond Purchase price) -1 ] x 360/actual Future invoice = Forward Price * conversion factor + AI at future date = dirty price Bond Purchase Price = full cost include Accr Interest at settlement date= billing price 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. yields and calculating the implied repo rate for each bond in the deliverable basket at the new yield. A comparison of implied repo rates can then be made to determine whether a different bond is cheaper to deliver given the changed yield levels. Table 2 depicts this analysis for 25 basis point incremental changes in yield all the way up to +200 bps. To calculate the implied rate, take the ratio of the forward price over the spot price. Raise that ratio to the power of 1 divided by the length of time until the expiration of the forward contract. If the other potential sources of funding our company wants to compare are quoted on a 365 day basis, then we need to calculate the implied rate on a 365 day year. There are 25 days between the first and second legs. Therefore: Interest rate = 42,400,066.11 42,297,260.27-1 x 365 25 = 0.0355 or 3.55 % Conventional calculator
Simple term repo/funding rates, specified as a number of futures NFUT-by-2 matrix of rates in decimal and their bases in the form of [RepoRate RepoBasis]. Specify RepoBasis as 2 = actual/360 or 3 = actual/365.
Implied Repo Rate definition - What does Implied Repo Rate mean? The rate of return that can be obtained from selling a debt instrument futures contract and implied repo rate or the net basis; these expressions are described in Solving this equation for r gives the formula for the implied repo rate: IRR = (F • PF CTD When GC repo rates are negative, problems arise: In the case of the early termination of a buy/sell-back following a default or in calculating the exposure on the occurs during the contract period, based on the calculation of the margins, that is, The rate of period return is also called the “implied repo rate.” In a normal Also a spot and forward repurchase; repo rate is implied in repurchase price To calculate variation margin (if agreed); and ensure collateral adjusted
the federal funds rate and the Treasury general collateral (GC) repo rate, or the rate 8Some market observers attempt to estimate the size of the repo market; refer to 2008 curve, suggesting that at any recovery rate, the implied probablity of