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Beginning in 2001, there was another shift in the Repo market. The CFTC changed their margin investment rules, allowing for FCMs (Futures Commission Merchants) to invest their cash in federal agencies, municipal bonds, and corporate bonds, instead of just Treasurys. The premium that U.S. Treasury collateral enjoyed narrowed. Before the rule change in 2000, GC was averaging around 7 basis points below fed funds. Beginning in 2001, GC was averaging almost flat to fed funds. When there’s less demand for Treasurys, there’s a smaller premium.
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Scott E.D. Skyrm (The Repo Market, Shorts, Shortages, and Squeezes)