Gilt repos market

See Choudhiy (2002) for more information on the repo markets and the United Kingdom gilt repo market. 

With the introduction of the gilt repo market in 1996, IL swap market participants have been able to more efficiently hedge IL swaps with IL and nominal gilts. Since then, the market has developed to a state where GBP50-100 million plus deals are now the norm in the longdated maturities (15-year+). 

This is in addition to the normal daily money market operations, which keep the BoE closely connected to the gilt repo market. The BoE s dealers also carry ont orders on behalf of its cnstomers, primarily other central banks. 

The repo market in linkers coexists alongside an old-style stocklending system. Issues seldom stray far from general collateral rates. Index-linked gilts are not strippable, and there is no index-linked futures contract. There is a sterling inflation derivatives market, which... 

Members of the LSE mnst follow its conduct of business rules. In addition, there are specific rnles that apply to GEMMs. These include the requirement to report all gilt trades to the LSE, except gilt repo and stock loan trades. The LSE pnblishes market trading statistics that include the monthly turnover, by volnme, of gilt transactions. It also publishes the Daily Official List, the list of closing prices for all securities listed on the London market. 

In certain circumstances a specific issue will go tight in the repo market, meaning that it is difficult to borrow the stock for delivery into short sales. This is typically reflected in the stock going special in the repo market. On rare occasions the stock may become undeliverable, leading to failed transactions and also failure to deliver into the equivalent gilt futures contract. When this happens the DMO may make the stock available for borrowing, out of official portfolios, or issue a small amount of the stock into the market. 

The BoE is involved in the repo market as part of its daily operations in the sterling money markets. From the first quarter of 2000 the DMO also used gilt repo as part of its cash management operations on behalf of the government, which are designed to smooth the net daily cash flows between central government and the private sector. ... 

This is the open market in gilt repo. A market in equity repo, for instance, had heen in operation in the London market from around 1992. 

The Bank of England discourages sell/buybacks in gilt repo and it is unusual, if not unheard of, to observe them in this market. However, we use these terms of trade for comparison purposes with the classic repo example given in the previous section. The procedure and the terms of the trade would be identical in other markets such as Italy and Portugal where sell/buyback trades are the norm. In the Italian market for example, sell/buybacks are actually called repos. ... 

We consider first a classic repo in the United Kingdom gilt market between two market counterparties, in the 5.75% Treasury 2009 gilt stock. The terms of the trade are given in Exhibit 10.3 and illustrated in Exhibit 10.4. Note that the terms of a classic repo trade are identical, irrespective of which market the deal is taking place in. So the basic trade, illustrated in Exhibit 10.3, would be recognisable for bond repo in European and Asian markets. 

The margin level of repo varies from 0-2% for collateral such as UK gilts or German Bunds, to 5% for cross-currency and equity repo, to 10-35% for emerging market debt repo. 

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