Instead, the mystery lay within how these benchmarks varied in construction, with the major difference involving the type of collateral backing each repo loan. The Fed’s TGCR measures the average rate of borrowing cash in the triparty repo market but only when secured against U.S. Treasuries on an overnight basis.

The OFR’s TPR benchmark, however, measures the rate on all triparty repos backed by any type of collateral — from U.S. Treasuries to agency MBS to CDOs — that cash lenders are willing to accept from borrowers, provided it’s compatible with the Bank of New York Mellon’s triparty platform (the only one to exist).

The OFR calculates TPR by combining the rates on triparty repos secured against various types of collateral, namely U.S. Treasuries, U.S. federal agency securities, corporate bonds, and “other collateral” — the latter being a euphemism for the riskiest securities.

On closer inspection, only the rate for triparty repos where the cash borrower pledged “other collateral” has tumbled, but it’s been enough to suppress the OFR’s entire TPR benchmark. Repos secured against collateral outside the “other collateral” category have been trading at ordinary rates, rendering other OFR rates — and the Fed’s TGCR — stable. What’s more, the volume of repos backed by “other collateral,” which could be anything from private-label MBS (mortgage-backed securities) to even equities, has rocketed by $50 billion.

If the data is accurate — and that’s a big if — some large lender with access to the triparty market and supposedly the Fed’s RRP has been willing to lend cash against the riskiest collateral from the largest dealers at a big discount for days, earning increasingly lower returns.

That's a very unusual development in the most systemically important market on the planet and, if it sounds absurd to you, you’re not alone.

This type of trading reflects the opposite of the true dynamic that plays out in the triparty repo market, where safety is everything. Only the prominent financial behemoths — mostly the Fed’s primary dealers — have gained admission to borrow in triparty because the major triparty lenders, MMFs, have learned their lesson from previous crises. They will only lend to entities too big to fail.

No considerable triparty lender, out of the blue, would likely loan $50 billion in cash against risky securities at a lower rate than lending against safer collateral, let alone avoid lending at a higher rate to the Fed, risk-free, via its RRP facility.

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