• Blue Rose Marketing

Basis Points - Recent Developments in the Repo Market

By: Sam Gruer, Managing Director


In the past, Blue Rose has written about the use of Guaranteed Investment Contracts (“GICs”) and compared them with Flexible Repurchase Agreements (“Repo”) [link to article]. While the structural risks that we described then remain unchanged, recent market developments have begun to close the gap in yield between these two investment products, making the Repo product worthy of a second look when compared with a GIC.


Lately we have observed that certain dealers have become much more interested in funding themselves on the shorter end of the yield curve using a Repo format. What this means for issuers and borrowers who are either uncomfortable with the GIC structure or whose documents don’t allow it is that the negative arbitrage in a shorter dated fund, such as a project fund or loan acquisition fund, can be reduced by utilizing repos. As the chart below shows, for various average lives, the difference in rates amongst these investment alternatives may be much more appealing.


* Gross interest rates as of February 2, 2021


To discuss these types of investments as they relate to your specific needs and risk tolerance, please contact your Blue Rose advisor.


About the Author:


Sam Gruer, Managing Director


Sam Gruer, a 30-year municipal market veteran, joined Blue Rose in 2017 as a Managing Director and leader of the firm’s reinvestment business unit. Mr. Gruer guides his clients through the debt/swap/reinvestment transaction process by making strategic recommendations based on sound, thoughtful, and sophisticated analysis. He also offers expert advice on determining the optimal structure for reinvestment of bond proceeds by evaluating risk tolerance, identifying legal restrictions and estimating cash flow needs for his clients. He serves clients from our New Jersey office. Mr. Gruer can be reached at: sgruer@blueroseadvisors.com


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