Weird doesn’t even begin to describe it. You are a hedge fund, let’s say, and your business is buying risky longer-term bonds leveraging a menu of short-term funding options. Typical maturity transformation stuff. To obtain the most efficient leverage, the lowest cost, least friction funding, you want to post good quality collateral.
You don’t have any.
Not to worry, the bank you happen to be working with and which is absolutely dying to lend in repo to you has endless access to the best securities you could ever want. Better still, the place absolutely wants you to borrow its collateral so that you can then turn around and post the same you just borrowed right back to it.
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