lets say party A and party B are the two parties in a derivative contract.
If party B posts USD cash as collateral, it would expect party A to return the collateral with interest at settlement. How about if party B posts a US treasury as collateral? would it expect to receive anything on top of the security at settlement ? if so, what is the rational please?
No, it would not. There is no need for an explicit interest payment when securities are posted. This is because an interest rate is effectively already being applied (the overnight repo rate on the securities). For example, Party B could either (a) post cash and receive interest or (b) borrow a Treasury /invest cash in the repo market, then post the Treasury. The two situations are almost equivalent.
