Big investors like real estate trusts are becoming the largest players in the repo market, the overnight funding source that was a key factor in the financial crisis, the Financial Times reported Thursday.
The investors, which also include hedge funds and mutual funds, are taking up where banks have left off in the short-term market.
The report said the repo market was once a popular source of cheap financing for banks but since 2008 the market has shrunk and new rules have sent banks in search of longer-term financing.
Low rates in the repo market offer the investors a chance to boost returns but the plays are also a bet that markets will remain stable, it said.
“The growing use of repo has been particularly marked among [real estate investment trusts], which have overtaken banks and broker-dealers as the largest borrowers in the market,” the report said.
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