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The Repo Market, Shorts, Shortages, and Squeezes
The Repo market is the most important market that few people know about. It’s a pillar of the financial system that’s often misunderstood, yet plays a vital role in the industry. If the financial markets are the engine that powers the economy, the Repo market is the oil that lubricates that engine.The entire financial system relies on the Repo market. There would be no modern financial system without the Repo market. At the same time, there would have been no Salomon Brothers, Long Term Capital Management, Bear Stearns, Lehman Brothers, or MF Global without the Repo market either.Industry veteran, Scott E.D. Skyrm provides a rare insider’s view into everything you need to know about the Repo Market in this easy to understand and highly readable book.
- GenresEconomics
328 pages, Kindle Edition
Published August 15, 2023
82 people are currently reading
199 people want to read
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Displaying 1 - 8 of 8 reviews
May 24, 2024
Very interesting and accessible. I picked up this book since I was aware of the decline in activity and significance of the Fed Funds Market, and the Fed mostly uses repo to conduct monetary policy. Immense financial innovation since the creation of the Fed has also led to the emergence of shadow banking that the Fed, as a bank of BANKS, is ill-suited to tackle - perhaps there's some hint of status quo bias that we still use the Fed to set monetary policy for a financial system that is dominated by non-bank institutions? I'm not qualified to opine on this.
Just some notes for my own reference, not to say that I fully understand the repo market:
1) I've always wondered how repo, as a REPURCHASE instrument, would even be useful in any fuckin way for open market operations. If the Fed adds/ drains liquidity by repo, wouldn't that loan have to be repaid at the end of the period and thus reverse that operation? No. Remember that the seller of collateral (UST) is the borrower, vice versa. When Fed drains liquidity - the Fed sells UST to cash investors, cash investors bring cash to the RRP. Hence, cash investors are lending to the Fed. And they just keep that collateral, and liquidity is drained. Loan has 'defaulted' in a way (cuz the lender just keeps the collateral for good), if I understand this correctly. Vice versa thru the RRP when the Fed is adding liquidity.
2) In my macro and money and banking classes, I've learned of the corridor system for the Fed Funds Rate, but I never learned that of the Repo dimension of maintaining that corridor. I've only learned of the more traditional IOER maintains the floor of eFFR, while discount rate maintains the ceiling. Fair enough - that's true. But the RRP maintains the floor, while Standing Repo Facility maintains the ceiling, for the corridor of GC rates, and by extension, eFFR. Cash investors won't trade amongst each other at a rate that they can just deposit at RRP, while primary dealers won't borrow collateral at a rate higher than SRF.
3) Due to the ease of borrowing thru repo, it has obviously helped facilitate massive leverage, mostly that of hedge funds.
4) Got me thinking more about the Fiscal Theory of the Price Level. When will these massive deficits end? Seems like endless Treasury issuance. Is fiscal dominance a real thing? How do we know that the Fed isn't just funding the government? This issue can't usually be debated seriously because it gets political very quickly.
Just some notes for my own reference, not to say that I fully understand the repo market:
1) I've always wondered how repo, as a REPURCHASE instrument, would even be useful in any fuckin way for open market operations. If the Fed adds/ drains liquidity by repo, wouldn't that loan have to be repaid at the end of the period and thus reverse that operation? No. Remember that the seller of collateral (UST) is the borrower, vice versa. When Fed drains liquidity - the Fed sells UST to cash investors, cash investors bring cash to the RRP. Hence, cash investors are lending to the Fed. And they just keep that collateral, and liquidity is drained. Loan has 'defaulted' in a way (cuz the lender just keeps the collateral for good), if I understand this correctly. Vice versa thru the RRP when the Fed is adding liquidity.
2) In my macro and money and banking classes, I've learned of the corridor system for the Fed Funds Rate, but I never learned that of the Repo dimension of maintaining that corridor. I've only learned of the more traditional IOER maintains the floor of eFFR, while discount rate maintains the ceiling. Fair enough - that's true. But the RRP maintains the floor, while Standing Repo Facility maintains the ceiling, for the corridor of GC rates, and by extension, eFFR. Cash investors won't trade amongst each other at a rate that they can just deposit at RRP, while primary dealers won't borrow collateral at a rate higher than SRF.
3) Due to the ease of borrowing thru repo, it has obviously helped facilitate massive leverage, mostly that of hedge funds.
4) Got me thinking more about the Fiscal Theory of the Price Level. When will these massive deficits end? Seems like endless Treasury issuance. Is fiscal dominance a real thing? How do we know that the Fed isn't just funding the government? This issue can't usually be debated seriously because it gets political very quickly.
December 4, 2023
8/10
As someone who comes from an economics and financial policy background with some experience in repo markets (a long time ago), I found this book from the perspective of a market participant refreshing and informative. While students of economics might find some of it a bit in the weeds, these markets are one where understanding players' different motivations and perspectives is hugely important. Anyone who picks up this book will probably have some background in economics or finance, which is necessary, but otherwise it is written in a way that can introduce the subject to relative newcomers. Despite that, it does not shy from getting into the nuts and bolts and it covers a lot of ground. The book will definitely be an indispensible introduction (along with Stigums) for anyone who wants to work in or on these topics.
As someone who comes from an economics and financial policy background with some experience in repo markets (a long time ago), I found this book from the perspective of a market participant refreshing and informative. While students of economics might find some of it a bit in the weeds, these markets are one where understanding players' different motivations and perspectives is hugely important. Anyone who picks up this book will probably have some background in economics or finance, which is necessary, but otherwise it is written in a way that can introduce the subject to relative newcomers. Despite that, it does not shy from getting into the nuts and bolts and it covers a lot of ground. The book will definitely be an indispensible introduction (along with Stigums) for anyone who wants to work in or on these topics.
August 9, 2025
It covers everything from basic transactions to specials, squeezes, and historical market events, giving readers a strong grasp of Repo markets. The depth of detail makes it a valuable resource for anyone wanting to truly understand the nuts and bolts of repos. However, the book is dense, and even readers with average finance knowledge may find it challenging to get through without rereading sections. It’s best suited for those willing to put in the effort for a rewarding, but demanding, learning experience.
December 13, 2025
Very nice read on a topic which should really have more written on it. What fraction of the population have heard of the repo market? I enjoyed the author’s practitioner perspective combined with the loose structure of the book, as it meanders through various contemporary issues and historical episodes that have afflicted the Treasury market. That being said, I would love to read a more academic book on the same topic, so hopefully a finance professor decides to write one eventually.
January 26, 2024
A good, educational read which led me to look up many terms and concepts the reader is assumed to have a basic understand of (which I lack).
There was a portion of the book which went way over my head and I plan to revisit, but overall the author does a great job of taking an incredibly complex field and boiling it down so the above-average layman can grasp it at a high level.
There was a portion of the book which went way over my head and I plan to revisit, but overall the author does a great job of taking an incredibly complex field and boiling it down so the above-average layman can grasp it at a high level.
August 30, 2024
For someone who has worked in finance for 25+ years I am embarrassed to admit how little I knew or understood about the repo market. Scott's Skyrm's "Repo Market" is a great resource for anyone wanting a history and explanation for the various components & processes of this key part of the financial system.
October 30, 2023
Amazing book on a very operational topic within the US and international financial markets. The book is meant for the layman or the curious unlike the many overly technical books out there. Sometimes it takes a veteran practitioner to explain something simply.
March 27, 2024
This single phenomenon explains the existence of financial products today
Displaying 1 - 8 of 8 reviews