The implied repo rate on a spread is the implicit return on a risk-free spread transaction.

Question

Quizplus · Accepted Answer

The statement is correct. The implied repo rate on a spread reflects the return that an investor could earn by simultaneously buying a security and selling a similar security with a higher yield. The transaction involves borrowing the lower-yielding security and lending the higher-yielding security in a repo agreement, which creates the risk-free spread. The implied repo rate is the interest rate that makes the spread transaction profitable, taking into account the costs of funding, margin, and other factors. It represents the opportunity cost of investing in the spread instead of a risk-free investment.

The Implied Repo Rate on a Spread Is the Implicit