Skip to content
All library documents

Assessing Mortgage Repo Spreads During Market Stress

Article Quant Q&A · Author: Larry
Read the original

Summary

The document concerns a mortgage-backed-securities repo borrower facing a sharp increase in funding spreads during market turmoil and asks whether a quoted rate is reasonable or comparable with other borrowers’ costs. The response says that average repo spreads are not publicly available, so a borrower should seek competitive quotes directly from several dealers.

It also links widening mortgage funding rates to deleveraging and liquidations by mortgage REITs and money managers, which leave dealers being asked to finance or hold more assets. This offers a market explanation for higher rates but does not establish whether any specific spread is fair. The exchange provides no market dataset, benchmark series, or details about how to compare quotes across collateral, counterparties, or terms. Its advice is therefore practical but limited to dealer price discovery and a qualitative account of stressed funding conditions.

Key ideas

  • Public averages for individual borrowers’ bond repo spreads may not be available.
  • Borrowers can compare funding costs by requesting competing quotes from several dealers.
  • Deleveraging and mortgage asset liquidations can increase pressure on dealers and raise funding rates.
  • A general market explanation cannot determine whether a particular borrower’s quoted spread is fair.

Tags

Fixed incomeRisk managementMarket microstructure
Full text
# Bond Repurchase Agreement (bond repo) spread


# Bond Repurchase Agreement (bond repo) spread












I am a capital market analyst, and I am responsible for margin call and repo roll of our MBS bond repurchase agreements.

Our bond repo are normally charged a rate of Libor(1 month) + 150-180 basis points. In the past week, the spread is widening to 350 bps due to market turmoil. How do I know whether 350bps make sense? Is there any place where I can find the average repo spread of other borrowers? Thank you!

## Answer by dm63 (score 1)

https://quant.stackexchange.com/a/51701

No, it is not published. The best you can do is call a few dealers and get competitive rates. As you might know there has been a significant deleveraging in the last few days, involving liquidations of mortgages by REITS and money managers. Funding rates for mortgages and other assets are hogher than normal as dealers get asked to take on more assets.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.