The spread that measures how special a security is seen in the repo market. It is the spread between the general collateral repo rate (GC repo rate) and a special repo rate, reflecting the return which the buyer of the underlying security (collateral) is willing to give up on the cash he/ she pays for that security. Practically, repo rates become “special” when specific securities are cherished by dealers to cover “short sales”, thus they stand ready to accept a lower return on their funds to secure such securities. The dealers would receive a special repo rate on their funds, as they would pay the spread between that rate and the general repo rate.

The specialness spread can also be considered a convenience yield, which results in a reduced rate of return on a security reflecting the non-pecuniary benefits associated with holding that security (mainly thanks to its value as collateral).

In the case of special repo, the buyer is only interested in a particular security (broadly, the so-called “specials“), and consequently the buyer would decide on the choice of collateral, from the very beginning of the transaction, in contrast to a general collateral repo, where the collateral is decided by the seller at the end of negotiations.