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5:00The Repo Market: Wall Street’s Overnight Loan Machine
Every night, banks and funds borrow trillions of dollars for a single day, secured against government bonds. When this plumbing clogs, like it did in September 2019, the entire financial system feels it.
A repurchase agreement (repo) is a loan dressed up as two trades. The borrower *sells* a security (almost always a US Treasury) today and *agrees to buy it back* tomorrow at a slightly higher price. The buyer is really lending cash; the security is just collateral parked overnight. The price difference, annualised, is the repo rate. Over $1 trillion changes hands this way *every day* in the US tri-party market alone.
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