A Question on Repo Collateral Liquity

[olivia_x]

hi guys, i have a question on liquidy of collateral in Repo and whether it affects Repo rate?
I didn’t notice it covered anywhere in the book but wonder whether low liquidity of collateral would increase Repo rates?
Thanks!

 

[Grrreg]

I would put liquidity of collateral in the “quality” characteristics, so higher quality collateral, all else equal, gives lower repo rate

 

[waynelee106]

Tricky question… What if you have two assets - $100 million of cash in a box or the original Mona Lisa portrait. Which would command the lower repo rate?
Mona Lisa portrait has low liquditiy and is a scarce asset.

 

[olivia_x]

waynelee106 wrote:
Tricky question… What if you have two assets - $100 million of cash in a box or the original Mona Lisa portrait. Which would command the lower repo rate?
Mona Lisa portrait has low liquditiy and is a scarce asset.

Ha Ha Ha! Guess it depends on the degree of liquidity and scarecity

 

[olivia_x]

Grrreg wrote:
I would put liquidity of collateral in the “quality” characteristics, so higher quality collateral, all else equal, gives lower repo rate

Thansk Gregg, guess i will go with this.

 

[verse214]

waynelee106 wrote:
Tricky question… What if you have two assets - $100 million of cash in a box or the original Mona Lisa portrait. Which would command the lower repo rate?
Mona Lisa portrait has low liquditiy and is a scarce asset.

If the mona lisa was valued at $100mm I would take the $100mm every day.