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