I had a thought experiment: suppose you wanted to borrow an equity security from me (perhaps to short sell it). I ask you for collateral and a borrow fee, and in exchange you get the stock.
If you give me cash collateral, I will buy Treasuries and make the risk-free rate until you cover. In a year, you give me back the securities, and I sell the bonds to give you back the collateral, keeping the difference.
Now, what if you give me Treasuries as collateral? Is there any way to profit from this? At first I thought I'd use the Treasuries as collateral to borrow cash, but by no-arbitrage whomever I'd borrow from is charging me the risk-free rate at least, which takes my profits away.
Intuitively it seems wrong to me that RFR bonds and cash wouldn't be fungible in every material way, but I can't find an analogous yield-generating move here that would suggest otherwise.