2.3 - asset classes: cash assets

what is a cash asset

something traded in money markets - so short term

who usually trades cash assets

wholesale clients, since you need to put so much in to get a meaningful return

what is a T-bill

a short term gov bond

are t-bills secured

no

how are t-bills issued

they are tendered weekly by the DMO

what is tendering

when you submit the minimum price you are willing to pay

what is the minimum bid for a t bill

£500k nominal

what kinds of coupons are on t-bills

they are zero coupon

because they are zero coupon, how do t-bills make money

they are traded at a discount to the nominal value

what is the minimum deal size for t-bills on the secondary market

£25k nominal

what is CP

commercial paper

what is commercial paper

short term corporate bond

is CP secured

no

what is the maturity threshold for an European CP

up to 1 year

what is the maturity threshold for CP in the US

up to 270 days

what is the typical issue length either way for CP in both Europe and US

3 months

what is the typical issue length for asset backed corporate bonds

between 90 and 180 days

who issues CP

the companies, via commercial paper programmes

what are the 2 issue methods for CP

direct paper

dealer paper

what is direct paper

CP is issued directly to a buy + hold investor by a large issuer

what is dealer paper

CP issued via a dealer, who then sells it in the secondary market

what is the coupon setup on CP

zero coupon - trades at a discount

what is the repo market

a sale and repurchase agreement

what is a reverse repo

purhcase then sale

show me how repo works with two participants, and what the repo rate is

participant A will do a ‘haircut’ on the value of the gilt to make sure that participant B is overcollateralised

so they end up paying more back to participant B in the end

the difference is the repo rate

when are repo agreements settled

T+1

what is the main purpose of the repo market

to keep liquidity where it’s needed

what is the DMO’s standing repo facility

an arrangement where the DMO does reverse repos with GEMMs

what is the threshold to be involved in the DMO’s standing repo facility

£5m nominal gilts or above