Ltd. Repurchase agreements are the primary way dealers in government securities are able to finance their government securities inventory. Every week the Treasury Department issues several billion dollars worth of securities.
Most securities trading is done between dealers.
Securities dealers might be buying securities which are valued at a sum greater than their net worth. The dealer pays the government several hundred million dollars now and enters into a repurchase agreement for the balance. Essentially, what the bond dealer does is agree to sell the unpaid balance back to the government with the understanding that he can repurchase them in the future. When the dealer buys the securities back from the government, the dealer pays the government interest. After all, the Treasury Department actually financed this transaction for the bond dealer.