Reverse Repo

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What is Reverse Repo?

A reverse repo is a financial transaction where you sell bonds/sukuk with the agreement to repurchase them at a later date. This allows investors greater flexibility in capitalizing on assets and provides a liquidity facility to maximize wealth and diversify investment assets.

Suitable for: Aggressive investors

Why You Should Invest in Reverse Repo

Leverage

Opportunities for Higher Potential

enable investors to leverage their capital, potentially boosting returns

Enhanced

Liquidity Management Flexibility

in managing short-term liquidity needs

Diversification

with Lower Initial Capital

allow you to diversify your investment portfolio with less upfront capital

Benefits & Privileges

Yield Enhancement

Reverse repos offer the potential to earn higher returns through leveraging. This can be especially attractive in a low-interest-rate environment where returns from direct bond investments may be lower.
Lower Initial Capital Requirement

With reverse repo, you can gain exposure to bonds/sukuk with a smaller upfront investment, as the remaining capital is provided through the transaction. This allows for greater diversification and efficient capital allocation.
Short Tenor

With flexible tenors (as short as one month) and the option to rollover, reverse repos provide investors with the flexibility to adjust their investment timelines.

What Are the Key Product Risks?

Leverage Risk

Reverse repos amplify returns, but they also increase the risk of losses. The use of leverage means that a decline in bond prices could magnify potential losses.

FX Risk

While the reverse repo transaction limit is maintained in MYR, it could be denominated in foreign currencies. This creates potential exposure to exchange rate fluctuations, which may impact the return on investment.

Margin Call/Top-up Risk

In cases where the value of the collateral falls or the margin requirements change, the investor may be required to inject additional funds to meet the minimum margin level.

Funding Risk

The interest rates for reverse repos may fluctuate, potentially increasing the cost of the transaction. This could impact the overall return on investment, especially if rates rise unexpectedly.

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Important Notes

WARNING
IN THE EVENT THE BANK HAS A NET EXPOSURE IN RESPECT OF THE CUSTOMER I.E. INSUFFICIENT MARGIN, THE BANK MAY, BY NOTICE TO THE CUSTOMER, REQUEST FOR TRANSFER OF CASH MARGIN ON SHORT NOTICE. FURTHERMORE, IF YOU CHOOSE TO ROLLOVER THE TRANSACTION, YOU MAY NEED TO TOP-UP ADDITIONAL MARGIN IF THERE IS INSUFFICIENT MARGIN.
ANY REQUEST FOR EARLY TERMINATION OF A TRANSACTION IS SUBJECT TO CIMB'S CONSENT AND AN EARLY TERMINATION FEE MAY APPLY. IN THE EVENT OF DEFAULT BY CUSTOMER, THE BANK RETAINS THE RIGHT TO TERMINATE ALL OUTSTANDING REPURCHASE TRANSACTIONS AND YOU WILL BE LIABLE TO PAY ALL OUTSTANDING AMOUNTS OWED TO THE BANK.

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A fixed income investment that provides a stream of regular income from selected bonds.

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A fixed income investment that provides a stream of regular income from selected sukuk.

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Reverse Repo

What is Reverse Repo?