With Repo Market Growth Come Regulatory and Systemic Concerns

To reconstruct a swap spread trade and assess its risk, a regulator would simultaneously need to see the cash Treasury position, the repurchase agreement (repo) financing, and the interest rate swap. No regulator today sees all three.

Vanderbilt Law School professor and associate dean Yesha Yadav made that point to the U.S. House Financial Services Committee Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity. She described Treasury securities as the “collateral backbone” of the derivatives and repo markets, and Treasuries, in turn, as “the uncontested safe asset in the global economy.”

But volatility bouts such as the March 2020 “dash for cash” and a 60 basis-point jump in 10-year Treasury yields in April 2025, along with concerns being raised by systemic-risk overseers including the multinational Financial Stability Board (FSB) about risks and the availability of analytics to manage them, underline and amplify Yadav’s warning.

Yesha Yadav

“Despite the depth of these interdependencies,” said the professor’s April 29 testimony, “our knowledge of the risks at the intersection of derivatives and...