Suppose that a trader goes short 100 million nominal of the 0.5% Bund maturing 15 February 2031 (the 10-year German government benchmark bond) for settlement date 6 March 2021.

a) What would be the traders motivation for going short this bond?

b) Why would the trader need to repo in the securities to settle the trade?

c) The bond is trading at a clean price of 101.258 and has accrued interest of 0.02602740 per 100 nominal. The trader reverses in the bond using repo with a term of 14 days at a repo rate of 0.012%. What will be the initial price in the repo, assuming that no initial margin is applied to the collateral, and how much money must change hands against this trade? Does the trader pay or receive this cash?

d) The repo is carried out on a tri-party basis through the CSD in which the securities are held. What does this mean, how does it affect the counterparty risk in the repo trade and how does it affect the trader using the securities to cover their short?

e) During the period of the repo who will have legal title over the securities.

f) What would be the repurchase price of the bonds in this repo?

g) This trade has no initial margin applied to it but this is not normal practice in the markets. What is the purpose of the initial margin in the repo market?