Repo Agreement Explained

Although repo loans are safe because they are backed by government securities, securities may lose value and affect the buyer`s investment. There are mechanisms built into the buyback space to reduce this risk. For example, a lot of rest is over-guaranteed. In many cases, if the collateral loses value, a margin call may take effect to ask the borrower to change the securities offered. In situations where it seems likely that the value of the security may increase and the creditor may not resell it to the borrower, the subsecure may be used to mitigate the risks. “As the budget deficit has increased by about 50 percent over the past two years, the supply of new government bonds, which need to be absorbed by debt markets, has increased significantly.