Decline in Bond Repo Market Raises Alarm

U.S. bond repurchases fall sharply as banks respond to new capital standards in impending global regulations.

Regulations aimed at reducing the risk of another financial crisis are starting to upend a key part of the bond market that expedites trading in everything from Treasuries to junk bonds.

The U.S. repurchase, or repo, market where banks and investors borrow and lend Treasuries and other fixed-income securities shrunk to $4.6 trillion daily outstanding last month, down 35 percent from a peak of $7.02 trillion in the first quarter of 2008, based on Federal Reserve data compiled from its 21 primary dealers.

Fed Plan

In one example of a repo agreement, a money market fund may lend cash to a dealer overnight, with government securities serving as collateral for the loan.

Still ‘Deep’

TBAC members, including Chairman Dana Emery, who is the chief executive officer of Dodge & Cox Inc., and Vice Chairman Curtis Arledge of Bank of New York Mellon Corp., didn’t respond to telephone requests or weren’t available for comment.

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