Invesco Podcast on Repo Agreements
Invesco sponsored a recent "AFP Conversations" podcast featuring Invesco's Laurie Brignac and Marques Mercier, entitled, "Repurchase Agreements: What Treasurers Need to Know. The session description tells us, "The repo market is vital to the entire financial system. So when it falls into trouble, the impact can be massive. That was the fear in September 2019. The Fed ultimately stepped in to stabilize things, but questions remain. Will this keep happening? And how might this impact corporate treasury and finance professionals?" Brignac comments, "Repos are quite important to the overall funding markets. It's important for ... the issuers or the borrowers that are borrowing the cash. But, it's also a really important source of overnight trade for those of us that have excess cash and want to put money to work on an overnight or a term basis in what is a secured, safe vehicle." Mercier explains, "For Invesco, we utilize repo as our primary cash management tool, and that's pretty standard across the money fund industry as a whole. So, essentially lending cash to security dealers and they're giving us collateral that we take ownership of. In the terms of the trade, whether it's overnight or a term trade, we're in full possession of the collateral and own the collateral and on the predetermined terms of the trade, we'll give the collateral back to the security dealer ... and get our cash return with the prearranged interest rate that we agreed upon." Brignac adds, "I think it's also really important to think about the markets in general. If you think about a money market fund, or a corporate treasurer for that matter, that has cash to invest ... they've got cash they want to put to work overnight, what securities options are out there? You can maybe do an overnight time deposit with a bank, but funds or certain cash providers may not be able to take credit exposure, if you will. What's nice about that is there isn't overnight U.S. treasury options. So, overnight repo, it's backed by U.S. Treasuries, can kind of serve as a substitute for like an overnight treasury bill. So, if you're doing repo with a high quality counterparty you are giving them cash, they're giving you Treasuries at a certain margin with a certain rate, so it is really ... the cash management tool of choice when it comes to overnight funding for the banks and the dealers. But, also for an overnight investment, for those of us that wake up every morning with excess cash."
