Repo & Reverse Repo

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Repo & Reverse Repo

Repo (Repurchase Agreement) is a short-term borrowing arrangement in which a financial institution sells government securities, such as Treasury Bills or Treasury Bonds, to another party with an agreement to repurchase them at a later date for a predetermined price. This provides short-term liquidity to the seller while offering a secure investment to the buyer.

Reverse Repo is the opposite transaction, where a financial institution lends funds by purchasing government securities with an agreement to resell them at a future date. This allows the lender to earn a return while the counterparty gains temporary access to funds.

FAQ

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Find answers to the most commonly asked questions about government securities, primary dealers, and market operations in Sri Lanka

The Association of Primary Dealers in Sri Lanka (APD) is the representative body of licensed primary dealers appointed by the Central Bank of Sri Lanka (CBSL). APD works to promote transparency, efficiency, and integrity in the government securities market, while serving as a bridge between the Central Bank, market participants, and the investing public.

Primary Dealers are licensed institutions authorized by the Central Bank of Sri Lanka to participate directly in auctions of government securities, such as Treasury Bills and Treasury Bonds. They play a vital role in ensuring liquidity and the smooth functioning of the government securities market.

Treasury Bills are short-term debt securities issued by the Government of Sri Lanka through the Central Bank, typically with maturities of 91, 182, or 364 days. They are sold at a discount to face value and redeemed at par on maturity. Investors earn a return equal to the difference between the purchase price and the face value.

Treasury Bonds are medium- to long-term debt instruments issued by the Government of Sri Lanka, usually with maturities ranging from 2 to 20 years. They carry a fixed coupon (interest rate), paid semi-annually, and the principal is repaid at maturity. Treasury Bonds provide stable income to investors over a longer period compared to T-Bills.

Tenure: T-Bills are short-term (up to 1 year), while T-Bonds are longer-term (2+ years).
Returns: T-Bills are issued at a discount and redeemed at face value, while T-Bonds pay semi-annual coupons in addition to principal repayment.
Investor Profile: T-Bills suit investors seeking short-term placements, whereas T-Bonds suit those looking for regular interest income and long-term investment.

Repo (Repurchase Agreement): A short-term borrowing arrangement where one party sells government securities to another with an agreement to repurchase them at a later date, usually at a higher price. It provides short-term liquidity to the seller.
Reverse Repo: The opposite transaction, where an investor buys securities with an agreement to resell them later. This is commonly used by the Central Bank and financial institutions to manage liquidity in the money market.

Treasury Bills and Bonds are issued through auctions conducted by the Central Bank of Sri Lanka. Licensed Primary Dealers participate directly in these auctions. Individual investors can purchase securities by contacting a Primary Dealer or through commercial banks that act as intermediaries.

APD ensures that Primary Dealers adhere to best practices, promotes market efficiency, and engages with the Central Bank on behalf of its members. It also works to educate market participants and the public about government securities.

Since both Treasury Bills and Treasury Bonds are issued by the Government of Sri Lanka, they are generally considered low-risk investments, backed by the sovereign guarantee of the government. However, market risks such as interest rate fluctuations can affect their trading value in the secondary market.

Auction results and issuance details are published by the Central Bank of Sri Lanka (CBSL) and are also shared by Primary Dealers. APD may also provide links or references to such data on its official website.

Repo & Reverse Repo

Everything You Need to Know

Everything You Need
to Know