MF Global Repo-to-Maturity trade dissected

[Martinghoul]

Quote from benwm:
For a €30bn repo book a 1% rise in the funding cost is €300m annually, or €25m per month.

When MF Global issued their bonds in August the coupon was around 6% and the bond yield got to 18% last week.

A 12% rise in funding costs would then equal €300 million per month.

So if MF Global had to borrow €30bn each day to maintain their repo book, yes, these numbers (€300 million per month) dominate the €200BN estimated collateral increase.

Is this in essence what you are saying Martinghoul?

Yes, maybe you don't have to borrow the lot daily, but that's the idea. Now take this story to a logical extreme. It's not that it becomes more costly for you to borrow, but rather that you simply can't borrow, because no counterparty is willing to lend you cash, even overnight. To be sure, this is just my understanding of it, so, again, treat with a pinch of salt.

Quote from Daal:
Which assets where in this repo book?

Tasty European peripheral paper.