Repo-to-maturity

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A repo-to-maturity is a repurchase agreement, or repo, that terminates on a bond's date of maturity.[1] This type of transaction is typically low-risk, as the profit from the bond position is known in advance with the bond's maturity. In fact, this type of trade can often guarantee a profit for a financial institutions. The seller is in many cases not obligated to repurchase anything.

Repo-To-Maturity Agreements In The News

In November 2011, repo-to-maturity agreements came into the spotlight as broker-dealer MF Global Holdings Ltd. began liquidation proceedings. The U.S. Securities and Exchange Commission (SEC) had questioned the company as early as March 2011 regarding the removal of assets from MF Global's balance sheet that then CEO Jon S. Corzine had pledged as collateral, while remaining viable to creditworthy bond issuers.[2]

In the case of MF Global, regulators reportedly advocated raising more capital and disclosing the size of its positions. Based on these disclosures, ratings agencies then downgraded the company, and creditors on the other side of the repo-to-maturity agreements demanded more collateral.[3]

References

  1. The Repo Handbook. Google Books.
  2. MF Global’s Repo Transactions Drew Regulator Attention in March. Bloomberg BusinessWeek.
  3. The trade that killed MF Global. CNBC.