Implied repo rate - Financial definition
Financial acronyms
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Concise definition of the term implied repo rate
Interest rate at which a security needs to be borrowable in a cash-and-carry arbitrage for the transaction to reach its point of profitability.
Comprehensive definition of the term implied repo rate
If the actual repo rate is below the
implied repo rate, an arbitrage will generate a risk-free profit.
Example:
Bond
OAT 8.5% 25-10-2019, value date 10-06-2009.
Clean price: 136.904%
Accrued interest on 10-06-2009: 5.30959%
Dirty price: 142.2136%
Conversion factor: 1.148
Futures contract
BUND Sept 2009
Price: 117.955
Futures price x conversion factor: 117.955 x 1.148 = 135.41234%
Accrued interest at contract delivery date (10-09-2009) : 7.45205%
Futures settlement price: 142.86439% (135.41234% + 7.45205%)
Number of days to delivery:
92 (10-06-2009 → 10-09-2009)
IRR: (142.86439%/142.2136% -1)x(360/92) = 0.017907 = 1.7907%
OAT 8.5% 25-10-2019, value date 10-06-2009.
Clean price: 136.904%
Accrued interest on 10-06-2009: 5.30959%
Dirty price: 142.2136%
Conversion factor: 1.148
Futures contract
BUND Sept 2009
Price: 117.955
Futures price x conversion factor: 117.955 x 1.148 = 135.41234%
Accrued interest at contract delivery date (10-09-2009) : 7.45205%
Futures settlement price: 142.86439% (135.41234% + 7.45205%)
Number of days to delivery:
92 (10-06-2009 → 10-09-2009)
IRR: (142.86439%/142.2136% -1)x(360/92) = 0.017907 = 1.7907%