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The repo market: overnight loans backed by Treasuries
Spike Sept 2019; Fed facility 2021· Concept
Fact, law or dataA rule, statute, definition or measured number.
A repo is a secured overnight loan: one party sells Treasuries and agrees to buy them back next day at a slightly higher price.
See it on the Money & Finance map →How it works
The price gap is the interest. Dealers and hedge funds use repo to finance bond holdings; money market funds and banks lend cash into it. Lenders take a haircut, lending say $98 against $100 of bonds. SOFR, the benchmark for floating-rate loans, is computed from more than $2 trillion of these trades each day. In September 2019 some repo rates briefly hit 10% when cash ran short; in 2021 the Fed opened a standing repo facility as a backstop.
Why it matters
It is the plumbing under the Treasury market and much of Wall Street's funding. When repo lenders pull back, as from Bear Stearns and Lehman in 2008, firms fail fast.
Think of it like
Like a pawn shop for bonds: hand over collateral, get cash, buy it back tomorrow for a little more.
Facts, rules and data
The New York Fed publishes SOFR and repo volumes daily; the Office of Financial Research collects repo data; Fed reports document the 2019 spike and the 2021 facility.
Debates and risks
How many reserves banks need for repo to run smoothly is unknown; pressure returned in late 2025 as the Fed's balance sheet shrank.
Connections (5)
▸The repo market: overnight loans backed by Treasuries runs mostly on collateral of US Treasury securitiesFact, law or data
The connection
In a repo, a borrower sells Treasuries for cash and agrees to buy them back the next day at a slightly higher price; the difference is interest. Treasuries are the favored collateral because they are safe and easy to value. Dealers and hedge funds finance their Treasury holdings this way, trillions of dollars a day.
When and why
Daily among money funds, dealers, banks and hedge funds, cleared through BNY and the Fixed Income Clearing Corporation; an SEC rule adopted in 2023 phases in central clearing through 2027.
How we know
The New York Fed and the Office of Financial Research publish daily repo volumes and rates.
Debates and risks
Whether hedge funds' heavily borrowed Treasury trades financed in repo could trigger another Treasury market seizure like March 2020.
▸SOFR: the benchmark rate that replaced LIBOR is calculated from rates in The repo market: overnight loans backed by TreasuriesFact, law or data
The connection
Each morning the New York Fed takes the previous day's overnight repo trades backed by Treasuries, more than $2 trillion, and publishes the volume-weighted median rate as SOFR. Because it comes from real trades rather than bank estimates, it is hard to rig, but repo squeezes move it: on September 17, 2019 it jumped to 5.25%.
When and why
Published by the New York Fed, with the Office of Financial Research, since April 3, 2018.
How we know
The New York Fed publishes its method, daily volumes and rate percentiles alongside each SOFR value.
Debates and risks
Whether a rate that spikes at quarter-ends and tax dates, reflecting collateral and cash shortages, is the right benchmark for long-term loans.
▸The repo market: overnight loans backed by Treasuries is backstopped by a standing facility at The Federal Reserve System (the Fed)Fact, law or data
The connection
In repo, firms borrow cash overnight by pledging Treasuries as collateral. When repo rates briefly spiked to about 10% in September 2019, the Fed rushed in cash. In July 2021 it created the Standing Repo Facility, lending against Treasuries at a set rate, meant to cap how high repo rates can go.
When and why
New York Fed trading desk; spike on September 17, 2019; facility created July 2021; record use in late October 2025.
How we know
The New York Fed publishes daily facility use and repo rates, including SOFR.
Debates and risks
Whether dealers will use the facility in a real crunch without stigma, and how large it should be, are debated.
▸Dollar plumbing: bank reserves, the TGA and the Fed's reverse repo showed strain in the Sept 2019 spike in The repo market: overnight loans backed by TreasuriesFact, law or data
The connection
On September 16–17, 2019, corporate tax payments flowed into the TGA and new Treasury debt settled, draining reserves to about $1.4 trillion. Big banks held back cash, and overnight repo rates jumped from about 2% to as high as 10%. The Fed injected cash through repos, began buying T-bills, and in 2021 created a standing repo facility.
When and why
New York money markets, mid-September 2019; the New York Fed's trading desk responded within a day.
How we know
SOFR printed 5.25% on September 17, 2019; Fed and BIS analyses traced the spike to scarce reserves.
Debates and risks
Whether reserves were truly scarce or banks' liquidity rules kept cash idle is still debated; similar strains reappeared in late 2025.
▸The Fed's overnight reverse repo facility (ON RRP) puts a floor under rates in The repo market: overnight loans backed by TreasuriesFact, law or data
The connection
A money fund can always lend to the Fed overnight at the RRP rate, set at the bottom of the fed funds range, so it will not lend to a dealer in the private repo market for less. That keeps repo rates and SOFR from sinking below the Fed's range, while the standing repo facility caps them from above.
When and why
Since the Fed's December 2015 rate liftoff, run daily by the New York Fed's trading desk.
How we know
New York Fed data show private repo rates have rarely traded far below the RRP rate since the facility became a policy tool.
Debates and risks
With little cash left in the facility, its floor matters less, and how repo rates behave as reserves tighten is an open question.