The return on a repo, i.e., the interest earned by the lender (repo buyer) in a repo transaction. It is the amount of money paid on the cash that is lent out to the borrower (repo seller) or the party posting the collateral. In essence, it is a money market rate corresponding to the repo maturity. This rate, in turn, is a function of the base rate (published by a central bank) and the supply/ demand in the money market and repo market. From the perspective of the seller (i.e., the amount paid by the seller), the repo return is expressed as follows:

Repo return = repurchase price – sale price

If the buyer waits till repurchase date, the repo return is the full return earned over the entire term. However, if there is an early termination option, the repo return will be the return accrued to termination date.

The repo return is sometimes known as the repo rate. However, the two differ in the sense that the repo rate is the return (earned on a repo transaction) expressed as an interest rate on the cash leg of the transaction.

The repo return is also referred to as repo interest.