A repo is a collateralized loan using the security as pledge

Evidence

Suppose party A wishes to buy a security such as a bond using borrowed money. It approaches party B with a request to “repo” the bond. If the repo is agreed to, party B lends party A an amount of money close to the value of the bond. Party A buys the bond on the market and transfers it to the custody of party B for safekeeping. The two parties (A and B) also agree that on a specified future date party A will repay the amount of money lent by party B, plus interest, and party B will return the bond to A. The bond is thus serving as collateral for the loan from B to A. The interest rate that A pays B is called the “repo rate.” — Donald MacKenzie, An Engine, Not a Camera, 1290

Categorization

• DEFINE: Clear definition of a repo agreement and the repo rate, foundational to understanding derivatives collateral mechanics.
• XREF: connects to: Shortages of Treasury bills pushed AAA mortgage securities into repo collateral. — Mark Blyth, Austerity: The History of a Dangerous…, 81; Eurozone sovereign bonds replaced US mortgage securities as the systemic repo collateral — Mark Blyth, Austerity: The History of a Dangerous…, 237; Repos can be structured as an outright sale plus forward repurchase — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1291 (+1 more)

Broader Connections

• Repos can be structured as an outright sale plus forward repurchase #expands (0.90) — Donald MacKenzie, An Engine, Not a Camera, 1291
• Repo haircuts buffer lenders against default when bond prices fall #expands (0.85) — Donald MacKenzie, An Engine, Not a Camera, 1292