How an interest rate can become negative

This post will summarize a unique historical situation whenĀ an interest rate on an asset became negative. The repo market is a market for short term, low rate, collateralized loans, often done between between large entities. The collateral on these loans are government securities, such as treasury notes, so someone will loan someone money, and in return, they will receive a t-note as collateral until the loan is repaid. Here is a quick visual representation of how the repo market works. To get to the story, in the summer of 2003, there was a rising interest rate on intermediate t-notes leading Continue reading How an interest rate can become negative