RDP 2024-08: Modelling Reserve Demand with Deposits and the Cost of Collateral Appendix A: Repo Rate Calculation

Institutions regulated by APRA who have gross repo and securities lending positions of greater than or equal to $1 billion are required to report their trades outstanding as at the end of the month. ARF 721.0A contains a subset of these repo dealers who, as part of this reporting requirement, submit trade-level data. Before calculating the rate, I apply a number of filters to these data.

First, I include only trades where general collateral 1^[10] is posted. By market convention, these security types are able to be used interchangeably by market participants (AFMA 2023). Second, trades reported in ARF 721.0A only contain their residual (and not original) maturity. I filter the dataset to include only trades with an overnight residual maturity that were originated within the month. For example, I exclude trades originated in the month prior which have since decayed to have overnight residual maturity. I also remove all repo trades with the RBA. Finally, to remove bonds trading ‘special’, I order transactions based on their repo rate and remove the bottom 25 per cent of volume from the sample. From the remaining repo trades, I calculate the overnight GC repo rate as the volume-weighted median rate.

Footnote

Australian Government and semi-government bonds, Treasury notes, and Australian Government and semi-government indexed bonds used as collateral. [10]