Repo rate runs below Libor because bonds serve as collateral with a haircut.

Evidence

The interest rate at which repo can be used to borrow money to buy bonds is called “repo rate.” (See appendix F.) Because the bonds are held by the creditor as collateral, and because a “haircut” protects against the consequences of default, repo rate is typically lower than Libor (by 20 basis points at the time we are discussing). — Donald MacKenzie, An Engine, Not a Camera, 1298

Categorization

• DEFINE: Defines repo rate and explains why it sits below Libor via collateralization and haircuts.
• XREF: connects to: Shortages of Treasury bills pushed AAA mortgage securities into repo collateral. — Mark Blyth, Austerity: The History of a Dangerous…, 81; Repo haircuts buffer lenders against default when bond prices fall — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1292