There have been numerous headlines the past two years where we learn that quant funds are engaging in algorithmic basis trades (aka relative value trades) between Spot Treasuries and Treasury Futures, and that this is a rather large market ~$1 Trillion.
The returns on this arbitrage are of the order of a few bps. However, with Repo leverage, those returns are goosed up to make it worthwhile apparently.
If the Repo rate is of the order of the Fed Funds Rate, how can this be worthwhile? FFR currently is 9bps. If you borrow money via Repo at 9bps, how can you chase a return lower than that in basis trades?