Fear the repo: funds face up to rate-contingent liquidity risks

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When interest rates rise, pension funds, life insurers and other big users of the swap market will find themselves in a harsh new environment, created by the move to central clearing. The long-dated, fixed-rate receiver positions they put in place to hedge their liabilities will slide out-of-the-money, compelling them to post billions of dollars in cash variation margin to central counterparties (CCPs). If rates rise far enough, some funds estimate the resulting margin calls will eat up more

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