Why repo rates increase is causing forward price of bond to increase. Confused with two arguments below
Explanation 1 (Collaterizied loan)
If repo rates are higher then it means that its very high rate of loan for this bond, or in other words the bond is not in much demand. This suggests that price should be cheaper. Same goes for forward price then.
If repo rates are higher, i will try to profit from that (from perspective of reverse repo counterparty) by buying the bond in first leg and gaining repo rate in the next leg of the transaction when i sell the bond back. Not entirely convincing argument here, but in the next leg of the transaction i should make a loss as high repo rate is giving me good profit. *Assuming all market participants are capturing this high repo rate and buying in the spot market. This should drive up spot price of the bond in short term and hence the forward price.