Current Issues in Economics and Finance

Repurchase Agreements with Negative Interest Rates

April 2004 Volume 10, Number 5
JEL classification: G28, G18, H63

Authors: Michael J. Fleming and Kenneth D. Garbade

Contrary to popular belief, interest rates can drop below zero. From early August to mid-November of 2003, negative rates occurred on certain U.S. Treasury security repurchase agreements. An examination of the market conditions behind this development reveals why market participants are sometimes willing to pay interest on money lent.

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