#jsDisabledContent { display:none; } My Account |  Register |  Help

# Implied repo rate

Article Id: WHEBN0018876336
Reproduction Date:

 Title: Implied repo rate Author: World Heritage Encyclopedia Language: English Subject: Mathematical finance Collection: Publisher: World Heritage Encyclopedia Publication Date:

### Implied repo rate

Implied Repo Rate IRR is the rate of return of borrowing money to buy an asset in the spot market and delivering it in the futures market where the notional is used to repay the loan. (This definition of IRR should not be confused with internal rate of return.)

## Simplified closed form

IRR = \left( \frac \text{InvoicePrice} \text{PurchasePriceOfBond} -1 \right)\left( \frac \text{dayBase} \text{daysToDelivery} \right) where dayBase is 365 or 360

## Usage

### Determine the Cheapest To Deliver asset

To determine the cheapest bond in a basket of deliverable bonds against a futures contract, implied repo rate is computed for each bond; the bond with the highest repo rate is the cheapest. It is the cheapest because it has the lowest initial value to yield a higher return provided it is delivered with the stated futures price.

The net basis between a futures price and its underlying bonds may provide an indication of which bond is the cheapest. However, since the method, unlike the IRR method, neglects the actual running cost of bonds, it is less accurate as a measure for CTD ranking.

## References

• Futures Bond Basis
This article was sourced from Creative Commons Attribution-ShareAlike License; additional terms may apply. World Heritage Encyclopedia content is assembled from numerous content providers, Open Access Publishing, and in compliance with The Fair Access to Science and Technology Research Act (FASTR), Wikimedia Foundation, Inc., Public Library of Science, The Encyclopedia of Life, Open Book Publishers (OBP), PubMed, U.S. National Library of Medicine, National Center for Biotechnology Information, U.S. National Library of Medicine, National Institutes of Health (NIH), U.S. Department of Health & Human Services, and USA.gov, which sources content from all federal, state, local, tribal, and territorial government publication portals (.gov, .mil, .edu). Funding for USA.gov and content contributors is made possible from the U.S. Congress, E-Government Act of 2002.

Crowd sourced content that is contributed to World Heritage Encyclopedia is peer reviewed and edited by our editorial staff to ensure quality scholarly research articles.