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Tuesday, May 27, 2014

100-leveraged long Treasury position

The LTCM case and Mark's slide P7.43 illustrate very high leverage used in treasury trading. Say i buy $100m of a T bond AA. Immediately i repo it and get $99m, so I only use up $1m of my capital. 

However, if I were to keep the repo for a few months, i would pay quite a bit of repo fee.