Illya Gerasymchuk
Entrepreneur / Engineer
so if you have a UST bond worth $100: lender applies a haircut (e.g. 2%) - 100*(1-0.02)=$98 lender sets a repurchase price (e.g. $98.013) so you use your $100 bond to get a $98 loan, for which you must repay with a fee (interest) $98.013
repurchase agreements are almost always over-collateralized the borrower undervalues the collateral by a percentage (haircut) - this is a buffer against price volatility the purchase and repurchase price are computed over the post-haircut value