Abstract
The Triparty Repo (TPR) market lies at the heart of the US short-term funding markets. This paper demostrates the existence of strong and stable relationships between investors (Money Market Funds) and dealers in this market, which can significantly affect terms of trade (the probability of a trade and the volume and, to some extent, the price of actual trades). Importantly, such relationships support the funding role of the TPR market, as dealers can rely on such relationships to secure funding in the face of liquidity shocks. We consider two shocks: (i) the Federal Reserve’s Overnight Reverse Repurchase (ON RRP) operations, a negative shock to the supply of funds for dealers; and (ii) Treasury auctions, a positive shock to the demand for funds by dealers. Our results suggest that relationships provide a built-in mechanism in the TPR market to support stability in face of funding shocks.
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