Reverse repo rate
Definition · Level 8 · Rates, FX & macro
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The rate at which the Fed borrows cash overnight from money-market funds and other non-banks, against its Treasuries. Funds will not lend elsewhere for much less, so it acts as a floor.
Example
A money fund with idle cash lends it to the Fed overnight at this rate.
Where Tradecraft teaches it
Level 8 · Rates, FX & macro, in the lesson “Repo, SOFR and the Fed’s balance sheet”: Overnight borrowing against bonds, the benchmark that replaced LIBOR, the tools behind the target range, QE and QT.
Related terms
- CollateralAn asset pledged to secure a loan. If the borrower fails to repay, the lender keeps it.
- IORBInterest on reserve balances: the rate the Fed pays banks on the reserves they hold at the Fed.
- LIBORLondon Interbank Offered Rate: the old benchmark set from banks’ estimates of their unsecured borrowing costs.
- QEQuantitative easing: the central bank creates reserves to buy Treasuries and mortgage bonds at scale, expanding its balance sheet to push down…
- QTQuantitative tightening: the central bank shrinks its balance sheet, mostly by letting bonds mature without reinvesting, draining reserves and…
- RepoRepurchase agreement: sell a security and agree to buy it back later at a slightly higher price; economically a short-term loan secured by that…