Who’s Borrowing and Lending in Repo Markets?

Repo markets are a foundational but often overlooked part of the U.S. financial system, with recent estimates putting the daily amount of outstanding agreements at around $13.5 trillion, or 40 percent of U.S. GDP, according to the Office of Financial Research. A repurchase agreement, or repo, is a transaction in which one party sells a security for cash and commits to repurchase the same or a closely related security at a prespecified price on a future date. From the buyer's perspective, the transaction is a reverse repo. The New York Fed's Liberty Street Economics series examines who participates in these markets, why they engage, and how different repo segments are structured. The scale alone makes repo activity a key indicator of short-term funding conditions and financial system liquidity.

The mechanics of a repo determine its interest rate, known as the repo rate. That rate varies based on the type of collateral accepted, the maturity of the agreement, the counterparty, the size of the haircut, and the clearing process. Around 70 percent of repos are collateralized by U.S. Treasury securities, and most have an overnight maturity. In terms of clearing, roughly 60 percent of repos are cleared through a central counterparty or a third party, while 40 percent are directly cleared between the buyer and seller. A stylized example from the analysis shows a money market fund investing $98 million in cash overnight against a basket of Treasury securities with a 2 percent haircut. The following day, the MMF receives $98,009,800, equivalent to a 3.6 percent annualized return, and returns the securities.

The evidence points to a clear division between cash borrowers and cash lenders. Hedge funds are identified as the main cash borrowers in private repo markets, with outstanding borrowing ranging between $800 billion and $1.3 trillion since 2013. Hedge fund borrowing in repo markets tripled over 2013-23, from $400 billion to $1.5 trillion, and then doubled again in the following two years, reaching $3 trillion in late 2025. On the lending side, money market funds are the main cash lenders. MMF lending increased by 90 percent from January 2021, rising from under $600 billion to $1 trillion, and then almost tripled over the following five years. Hedge funds also lent around $1.3 trillion, a steady increase from $350 billion in early 2013. The next three largest lenders—government-sponsored entities, banks, and others—jointly lent $0.6 trillion to $1.5 trillion in repo over the 2013-25 period.

The structure of repo markets has implications for monetary policy transmission and financial stability. Because repos are collateralized, they reduce risk for cash lenders compared with unsecured money market instruments such as federal funds, Eurodollars, or commercial paper. An important legal feature supports this: repos involving Treasury and federal agency securities are exempt from the automatic stay under the U.S. Bankruptcy Code. If a cash borrower defaults, the cash lender can generally terminate repo contracts, sell the securities promptly, and avoid bankruptcy delays. This exemption has contributed to the liquidity and growth of repo markets since the 1980s, when market size and contracting conventions changed markedly following dealer failures, rising interest rate volatility, and growing Treasury debt supply.

The analysis is based on a single full-text source from the New York Fed, and it explicitly frames the post as the first in a three-part series. It does not provide a full breakdown of all repo segments, the specific collateral types beyond Treasury securities, or the precise timing of the hedge fund and MMF lending shifts. The data cited from the Office of Financial Research are referenced as 2025 and 2026 estimates, but the underlying methodology is not detailed in this post. What to watch next is whether the rapid growth in hedge fund repo borrowing and MMF lending continues, and how the microstructure of different repo segments—central counterparty, third-party, and direct clearing—affects pricing and risk across the market.