Citigroup had one of its most profitable years in recent history in the repurchase-agreement market, the bank’s global head of fixed-income finance said, countering much of the industry grumbling that regulation is crushing this business.
Speaking in Luxembourg, he offered a much more optimistic outlook for the repo market, where bonds are used as collateral for short-term loans, than the “doom and gloom” scenario he feared as recently as last year. Banks can boost profits by increasing repo-lending spreads without losing the clients, he said.
The repo market is under pressure from regulation crimping banks’ balance sheets. Dwindling volumes raised their concern that liquidity will be diminished in the cash-bond market, eventually leading to higher interest rates for government-debt issuers.
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