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What is implied repo rate?

Implied repo rate

Implied repo rate (IRR) refers to the rate of return that can be earned by buying an asset in the spot market using borrowed money, whilst simultaneously selling a bond futures or forward contract in the futures market.

Where have you heard about implied repo rate?

Implied repo rate is a term used often in basis trading. For example, an investor evaluating buying a stock portfolio and selling a stock index future contract, would calculate the expected return (dividends plus futures basis) as a money market rate.

What you need to know about implied repo rate.

With the implied repo rate, the bond an investor buys is held until it is delivered into the futures or forward contract and the loan is repaid. The term derives from the reverse repo market, which functions similarly to a traditional interest rate and is also sometimes referred to as Return to Hedged Portfolio (RHP). The implied repo rate is calculated as the annualised rate of return for the transactions including purchasing, sale and delivery, with the calculation taking into account all the cash flows associated with the security.

Find out more about implied repo rate.

Explore similar terms by reading our definitions of Repo 105 and Repurchase agreement.

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