Confirmed, yardie's definition is straight up wrong.

EDIT:

It's worth noting that the collateral is usually government bonds (this is called "general collateral", or GC), with bonds from quasi-government bodies like Fannie Mae or the World Bank being the second most common kind.

One way to look at repo is that it's a way for companies with a big stock of bonds (eg banks) to pawn them to borrow money. This is usually the cheapest option for them to borrow money at scale, and so the repo rate is seen as an indication of banks' financing costs.

Another way to look at it is that it's a way to buy government bonds on credit - you can buy a bond and then immediately repo it, using the money you've borrowed to pay for the bond. You have to pay the interest on the repo until you sell the bond and pay it back, but you never have to come up with a big pile of cash.

I have no idea which use case is more common.

So, stupid question: what's the purpose of suppressing short-term interest rates like that? Isn't that a meaningful market signal that banks should be running in a way that's less dependent on loans from other banks, just as a higher price for fish correctly signals market participants to look for substitutes?

(Side note: as someone who "should" benefit from more expensive liquidity as a holder of a money market fund, I looked up the Vanguard Prime MMF, and it turns out it doesn't hold any repos[1], even though that's a valid asset class for MMMFs[2]...)

[1] https://investor.vanguard.com/mutual-funds/profile/portfolio...

[2] https://www.pimco.com/en-us/insights/investment-strategies/f...

>New SEC rules require that government money market funds hold 99.5% of assets in government-related securities, including Treasury bills, agency discount notes and repurchase agreements (repos).

I'm probably way incorrect. But the article kept talking about repos and the repo rate without telling the reader what it actually means. I just went with whatever was the highest indexed in my search. I don't work in finance beyond layman so my understanding of finance domain specific lingo is very limited.

* And some would say to sneak in a little QE without calling it QE