Intraday Dynamics and Determinants of CCP and Bilateral General-Collateral Repos

Abstract

We study the spread between the intraday general collateral repo rate on Italian Government bonds and the ECB deposit rate, using a novel dataset. We focus on overnight repos, both cleared by central counterparty (CCP) and traded bilaterally. We observe that collateral supply, liquidity and duration affect significantly the repo riskiness and spread, but they have a reduced impact after the ECB quantitative easing interventions. Increased margins during the European sovereign crisis (ESC) further deteriorate the repo funding costs (pro-cyclical effect). Once we control for the impact of margin costs, the CCP repo appears not be significantly cheaper than the bilateral repo. Finally, we show that bonds with lower liquidity, greater supply, longer duration, and lower specialness are more likely to be selected as collateral. However, during the ESC, CCP-repo buyers tend to provide as collaterals bonds with higher liquidity and lower duration to reduce margin and repo trading costs.