Ultimate access to all questions.
Explanation:
Let's analyze each option:
Option A: TRUE - On-the-run (OTR) issues are the most recently issued securities and are in high demand for collateral purposes, so they do trade with larger special spreads (i.e., "more special") than off-the-run issues.
Option B: TRUE - The special spread is correctly defined as the difference between the general collateral (GC) repo rate and the special collateral repo rate: Special Spread = GC Repo Rate - Special Repo Rate.
Option C: FALSE - This statement is incorrect. On-the-run special spreads actually reach their lowest level immediately after an auction when supply is plentiful, and they increase over the cycle, reaching their highest level immediately before the next auction as supply becomes scarce.
Option D: TRUE - Special spreads are indeed volatile due to supply and demand dynamics for specific collateral, and they can be quite large, sometimes reaching hundreds of basis points.
Therefore, option C is the false statement and the correct answer.
In regard to special spreads, each of the following is true EXCEPT which is false?
A
On-the-run (OTR) issues tend to trade "more special" than off-the-run (OFR; i.e., old or double-old) issues, where "more special" refers to special spreads that are larger.
B
The special spread equals the general collateral (GC) repo rate minus the special collateral (aka, specifically requested collateral) repo rate.
C
On-the-run special spreads peak immediately after an auction, and tend to decrease over the cycle, reaching their lowest level immediately before the next auction.
D
Special spreads tend to be volatile on a daily basis (reflecting supply and demand for special collateral) and special spreads can be quite large (e.g., hundreds of basis points).
No comments yet.