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Jericho
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Posts: 25
Joined: August 22nd, 2007, 3:14 pm

Repo P&L

March 14th, 2022, 11:34 am

Hi All,

Total newbie here, I am struggling to calculate the correct repo PL on a transaction.
Basically I have a GBP Bond which I repo out as below:

UKT 2.75 09/24 (EK1093963)

so (41,395,983) @ 103.57 and I receive cash in of  GBP 42,874,661.  Lets assume the TD is 24th Feb and the Repo starts on the 25th of Feb.  Repo interest rate is 0.10% and the USD/GBP spot rates are 1.3392 on the 24th, 1.3412 on the 25th and 1.3415 on month end day

I am trying to calculate what the USD PL should be on Month end date.  I have one system at work telling me the MtD PL should be USD 99,251 and another system at work telling me the MtD PL should be just USD 470 so I am very confused - please could someone help and advise what the correct PL should be for month end based on the above information?

Thank you so much in advance
 
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DavidJN
Posts: 242
Joined: July 14th, 2002, 3:00 am

Re: Repo P&L

March 14th, 2022, 11:25 pm

There are two possible sources of error: marking the GBP repo incorrectly and getting the FX wrong. First thing I’d do is book some pure GBP/USD FX test trades into your two systems & see if the P&L agrees. If they don’t you may have found the source of your problem.

To help narrow down the thinking a couple of obvious questions: 1) What is the trade objective - inventory financing or is someone trying to trade short-term rates?;  2) Is this a specific bond repo or have you just delivered that particular bond into a general collateral repo?; 3) Is this a term repo (please provide the maturity if so) or a rolled O/N repo?; 4) Seeing as the bond coupon is significantly higher than the current 2-yr GBP benchmark yield, it can’t be the benchmark and so it is probably not on special, is that right? 5) What is the yield on the underlying bond at month end? 5) Has the underlying bond by chance experienced a lot of strip and/or reconstitution activity (related to my 1st question)?
 
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Jericho
Topic Author
Posts: 25
Joined: August 22nd, 2007, 3:14 pm

Re: Repo P&L

March 15th, 2022, 9:59 am

Firstly, thank you for replying,  [1] Trade objective is someone trading short term rates on our Fixed Income desk.  [2] This is a specific repo  [3] This is a term repo, I believe it starts on 25th Feb and ends on 1 March, so for month end there would be 4 days of accrued financing on it [4] - Agreed not on special,[5] Boomberg showing a YtM of 1.071% at month end.  With regards to FX both systems are in line, it appears as if one system is valuing the GBP cash on trade date and then revaluing it again at month end and taking the difference in USD and showing that as PL as Im able to tie to the 99,251 number but should that be negative not positive?? and the other system is simply doing 4/365*0.10% x Cash amount though I still cant quite tie to the number of 470

Always grateful for your help and time, not sure about the reconsitution activity apologies

J.
 
Mercadian
Posts: 39
Joined: July 24th, 2020, 4:22 pm

Re: Repo P&L

March 30th, 2022, 8:20 pm

Hey Jericho,

Here's what I think your two systems are doing:

PV(GBP): 42874661 
INT(GBP): 42874661 * 0.10% * 4/365 = 469.8592... probably your 470
FV(GBP): 42875130.8592....
PnL (GBP) = PV(GBP) - FV(GBP) = 470 GBP

PV (USD) = 42874661 * 1.3392 = 57417746.0112
FV (USD) = 42875130.8592.... * 1.3415 = 57516988.0477...
PnL (USD) = PV(USD) - FV(USD) = 99242.0365 USD

Regards,
M