The repurchase, or repo, market is a little-known part of the financial system but one that acts as a crucial safety valve in times of stress. It enables the flow of cash between central banks and financial institutions, providing the plumbing that keeps markets functioning smoothly.

This week, as financiers faced higher overnight borrowing costs in the money markets, central banks came to the rescue and flooded the financial system with cash. This was done to keep in line with one another the actual and target overnight borrowing rates, such as the US Federal Reserve’s Fed funds rate.