When unsecured is cheaper than secured borrowing

A strange thing is happening in money markets: the cost of borrowing unsecured wholesale funds is now below the cost of borrowing secured funds.

The problem, according to repo dealers, is that new leverage ratio rules are set to make it far too costly for repo market participants to transact.

Meanwhile in the world of swap spreads, as Bloomberg’s Tracy Alloway has been noting, rates have plummeted to historic negative lows which defy market logic.