What is the difference between general collateral repo rate and special repo rate?

A repurchase agreement (repo) is a short-term secured borrowing where the borrower sells a security and agrees to repurchase it at a higher price. The difference between sell and buy prices determines the repo rate.

General Collateral (GC) Repo:

• The lender of cash is willing to accept any security from an acceptable class (e.g., any US Treasury bond)
• The specific security does not matter — the lender just wants collateral
• The GC repo rate is essentially the secured overnight borrowing rate, close to the fed funds rate

Special Repo:

• The lender of cash specifically demands a particular security as collateral
• This happens when a specific bond is in high demand (often because short sellers need to borrow it)
• The borrower who can deliver this special security gets a lower repo rate as compensation

Example — Clearwater Securities (fictional):

Why Special Rates Are Lower:

The holder of a 'special' security is doing the cash lender a favor by delivering the specific bond they need. In return, the security holder gets to borrow cash at a below-market rate. The rate discount is the market's way of pricing the scarcity of that specific security.

Think of it this way:

• GC repo: 'I have cash, give me any Treasury as collateral'
• Special repo: 'I desperately need bond XYZ and I'll lend you cash cheaply if you deliver it'

When Bonds Go Special:

• On-the-run Treasury bonds (most recently issued)
• Bonds with large short interest
• Bonds needed for hedging specific exposures
• Settlement failures can force demand for specific issues

Exam Tip: Remember that the special repo rate is lower than GC, not higher. The security borrower (cash lender) pays a premium by accepting a lower return on their cash. The CFA exam may test which direction the rate moves.

Explore repo market mechanics in our CFA Level I bank.