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I'm looking at term repo rates and need to get a measure that removes the curve component so I can make an apples to apples comparison. I think the concept is similar to taking two Treasury bonds and getting the Z-spread against the fitted zero coupon Treasury curve to assess "richness" or "cheapness"

What's the appropriate benchmark? Does it make sense to price this off Treasury zero coupon curve or the zero coupon swaps curve.

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  • $\begingroup$ If you have a 2Y bond whose 3m and 6m repo rates are -0.8 and -0.7, and a 30Y bond whose repo rates are -1.3 and -1.4 respectively, what is it that you are trying to do (negative examples taken from EUR Govie market)? $\endgroup$ – Attack68 Jul 2 '18 at 6:07
  • $\begingroup$ Let's assume (keeping everything positive) that we have the following repo term rates for the 2Y bond, 0.5, 1.0, and 1.3 for 3m, 6m, and 12m. For the 30Y bond, repo rates are 0.3, 0.8, 1.2. I can't just say that the 3m repo for the 2Y which is 0.5 is special compared with the 12m repo for the 30Y bond which is 1.2. The repo rates includes a curve component. I'm trying to neutralize/remove the impact of the term structure. If you were purely looking at Treasury yields for the 2Y and 30Y bond, the yields would include a curve component so one would use ASW (asset swap spread). $\endgroup$ – VanillaCall Jul 3 '18 at 10:53
  • $\begingroup$ Bond yields are much more stable (due to much greater lengths of time). Bond repos are far more varied, as you say for one reason the specialness effect. Looking at GC (general collateral) is a better way to gauge the overall repo, since it is a much larger and more liquid market. However, there are often different types of GC, eg long maturity or short maturity GC. $\endgroup$ – Attack68 Jul 4 '18 at 6:39
  • $\begingroup$ I think we can use the OIS curve to get the repo spread off of. This would largely take out the term structure effect leaving with a relative measure of cheapness/richness. $\endgroup$ – VanillaCall Jul 6 '18 at 2:26

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