A Sudden Rumbling In The Repo-sphere Sends 10 Year Treasury Shorts Scrambling

Tyler Durden's picture

Curious why Treasury yields have ground lower this morning, considerably more than would perhaps be expected given the consumer sentiment data, and in the process have prevented the intraday "rotation" out of bonds into stocks, pushing the DJIA higher for the 11th consecutive day? The answer comes from the Fed which tipped its hand earlier and scared a few big bond shorts by issuing a Large Positions Reports from those entities which own more than $2 billion of the 2% of February 2023 (CUSIP: 912828UN8 auctioned off in February and reopened on Wednesday).

In an unexpected request, and on the back of a surge in fails to deliver earlier in the week and the huge apparent buyside demand in the latest 10Y auction (Primary Dealers getting only 22.3% of the takedown in the UN8 vs typical 40-60%) which settles today, MNI reports that the Fed is now inquiring who has large chunks of the bond: something it has not done since February 2012.

From MarketNews:

The Treasury is calling for Large Position Reports from those entities whose reportable positions in the 2% Treasury Notes of February 2023 equaled or exceeded $2 billion as of close of business Monday, March 11, 2013. Entities with reportable positions in this note equal to or exceeding the $2 billion threshold must report these positions to the Federal Reserve Bank of New York. Entities with positions in this note below $2 billion are not required to file Large Position Reports.


Reports must be received by the Government Securities Dealer Statistics Unit of the Federal Reserve Bank of New York before noon Eastern Time on Thursday, March 21, 2013, and must include the required position and administrative information. Large Position Reports may be faxed to (212) 720-5030 or delivered to the Bank at 33 Liberty Street, 4th floor.


Details on Call for Large Position Reports


Security Description: 2% Treasury Notes of February 2023, Series B-2023
CUSIP Number: 912828 UN 8
CUSIP Number of STRIPS Principal Component: 912820 B3 0
Maturity Date: February 15, 2023
Date for Which Information Must Be Reported: March 11, 2013 as of COB
Large Position Reporting Threshold: $2 Billion (Par Value)


Date Report Is Due: March 21, 2013, before noon Eastern Time

More evidence of a sudden shortage of safe paper was today's $5.199 billion POMO in the 2017-2018 space, which was covered at a record low 2.54 times (with the previous record QE3-low of 2.67 occurring on February 13 in the 2036-2042 space), showing Primary Dealers are suddenly very leery of handing over their bonds to the Fed.

Adding further mystery to what appears a sudden 10 Year collateral shortage, is that repo rates in the Tuesday-Thursday period have averaged between -2.543% and -2.838%, which have been abnormally low even accounting for the Wednesday UN8 reopening.  While "it is not uncommon for the new issue to trade super rich in repo ahead of settlement," specialness has not exceeded -1.00% for current 10Y notes recently, Barclays strategist Joseph Abate said.

As Bloomberg adds, repo specialness is effectively capped at -3.00%, equal to the 3% penalty that since 2009 has been assessed on cash lenders that fail to deliver borrowed securities. Feb-23 10Y, reopened for $13b, did trade at rates below 3.00% this week, presumably “because some desks did not want to be seen failing" though it would have been cheaper to do so, TD strategist Richard Gilhooly said.

So while most (interested) people know that in a world in which real assets and collateral are becoming increasingly scarce, and only the tenuous connection between the unfunded shadow banking system and deposit-fed traditional liabilities is allowing the perception of a status quo to persist by keeping asset prices rising, what many may not know is that without the creation of real assets but merely through the injection of some $85 billion in claim-dilution courtesy of the Fed every month (and as a matched $85 billion in safe assets is pulled away by the same Fed), the market may be reaching its saturation point on how much securities the Fed may be buying.

If the ongoing repo super-specialness persists, beware: as it will be the first time since Lehman that cracks have appeared in the very fragile shadow banking system. And shadow banking is perhaps the one key aspect of financial markets that has remained untouched since the great financial crisis, and also happens to be the critical nexus that allows Dealers to transform reserves into risk-asset purchasing dry powder. 

Should systemic weakness suddenly spread through repo, and thus shadow banking, run.

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DrDinkus's picture

just as big a doomer as the next guy on this website, but 10s last traded at +.15 bps in repo...the short squeeze (in repo) is over....have a great weekend, and FCK YOU BERNANKE!

ToNYC's picture

Bond shorts's lungs being ripped out lights-up my Cor'zine with Ben'zine.

Yen Cross's picture

 I just t/p on my usd/jpy short position. 

McMolotov's picture

A great disturbance in the Farce?

maskone909's picture

yo am i reading this right?  this translates to me that: many more participants are purchasing bonds than expected?

maskone909's picture

ok lets try this again


primary dealers are reluctant to give back their 10y.  why?

the fed hasnt questioned who is buying the 10y is quite some time. -ok, but what were the implications of the last time they requested this information?


also, why would the fed give a fuck if there are buyers of the 10y.  doesnt that mean that that someone is doing the feds job?

fonzannoon's picture


Bill Miller says buy Groupon.

maskone909's picture

lol yep good for atleast 20% intraday gain haha pump and dump

ToNYC's picture

It's harder to print CUSIPs on a reopen than something else it must be assumed. Gresham's law is hard-wired for even half a brain.

Panafrican Funktron Robot's picture

Just wanted to point out that we had a down day with 5.2 billion in POMO.

If you are in the market and didn't close your longs today, you are incorrect.

Cognitive Dissonance's picture

The only way the Fed will get my 10 year US Treasury paper is to pry it from my cold dead hands.


fonzannoon's picture

if a pd barfs lehman style the 10yr will be sub 1% and gold will be easily over 2k

I just can't see it happening. It never happens the same way. 

maskone909's picture

wouldnt that raise yields instead?  pardon my lack of familiarity on the matter.

machineh's picture

Safe haven demand drives yields down. As in 4Q 2008.

fonzannoon's picture

the day there is a real banking/financial crisis and yields spike is the day the dollar dies. it's not out of the realm of possibility.

more likely money scrambles for the warm safe burning house of treasuries and force yeilds lower.

as i am writing this the market is coming back and the ten yr is down 3bps. I don't see what all the fuss is about. BAC is ripping higher and for all the news out, jpm is barely down. same as it ever was.

Yen Cross's picture

It will happen MF Global style Fonz. ;-)

fonzannoon's picture

I hear ya yen. MF did not have fdic deposits. so they were free to be cut loose. i would look to another non fdic pd...so who would be on that list?

Yen Cross's picture

 That's your expertise Fonz. I'm sure it will be some huge firm that operates in obscurity. I like your burning house scenario. Unfortunately everyone will run to treasuries if the event isn't sudden. The outcome will be the same either way though. One of the benefits of being a reserve currency (banana republic). :-)

fonzannoon's picture

I just want to go live in a hut and open a tiki bar in panama at this point.

Panafrican Funktron Robot's picture

I'm going to go ahead and say GETCO.  Some key info:


"On the floor of the New York Stock Exchange, Getco is the so-called designated market maker, agreeing to be a middleman in certain stocks to keep the buying and selling orderly and fair, for 909 of the exchange’s 3,259 stocks. Knight plays the same role for 513 stocks. Together, they would be in charge of 20 percent more stocks on the exchange than their closest competitor, Barclays."

Gee, you're bigger than the giant demon bank, Barclays?  Yeah, lets see how long that lasts, motherfuckers.


"Net income fell 82 percent to $24.6 million in the nine months ended Sept. 30, compared with $134.8 million a year ago, according to a filing today. Revenue decreased 41 percent to $425.3 million. Getco agreed to buy Knight in a $1.4 billion deal after the market maker lost more than $450 million when computers generated a flood of erroneous orders in August."

It has been accurately reported here (and just about nowhere else) that the biggest casualty of Bernakenomics is stock volume.  GETCO has been famously close to the vest/flying under the radar since its inception.  They are outside the TBTF sphere.  Giant fucking target on their backs.

And as we all know, if GETCO experiences a Knight-esque "glitch"/attack, we'll be having some market holidays.  

Panafrican Funktron Robot's picture

Scary how plausible this "crazy conspiracy theory" is.  

fonzannoon's picture

excellent guess. I had not looked at it that way.

machineh's picture

First LPRs, then they outlaw private ownership of Treasuries under the Trading With the Enemy Act.

With no Treasuries in private hands, Ben can fix their yield at zero, or minus 10%, or whatever.

Did you think the Fed would accept its approaching insolvency without a fight?

Cognitive Dissonance's picture

"I have not yet begun to fight." - Ben "John Paul Jones" Bernanke

<Desperate men absolutely will do desperate things. Bank on it.>

whisperin's picture

It'd be funny if it was old JP whale maneuver and ever more so if some wanted more collateral!! How Lehmanesque would that be?

Hal n back's picture

4 bps down: BFD

its pre fed meeting time-we get volatility

TooBearish's picture

squeeze over - move along

1eyedman's picture

could anyone explain to me how, two days ago spx1555= spy155.95     and today spx1560=155.76?   7 points have been added to spx somewhere.

infiniti's picture

SPY paid a 69.4 cent dividend

Quinvarius's picture

It only makes sense that JPM would go from a whale trade in derivatives that short bonds to actually shorting bonds, and thereby failing to deliver anything they sold.  JPM is that stupid.

Cognitive Dissonance's picture

JPM is that Too Big To Fail "stupid".

Quinvarius's picture

JPM is an out of control mob of looters who are looting their own homes.

Dan Conway's picture

The credit and capital markets are so screwed up nothing would surprise me.  And some morons think more regulation and oversight is necessary when in reality is a little oversight of the banksta banks would probably be enough to break them up.  That is why none of the regulators are doing any regulating of the banksta banks.  Oh hell, enjoy the weekend everyone!

bart.naf's picture

Although repos are part of it, a +60% jump in the daily Securities Lending OMO is probably the main reason. "Funny" how jumps like that result in lower rates.




electricgorilla's picture

Rehypothecation comeback to a 10-year treasury note in a repo market near you. With bank powers combined, can they become Captain Planet and save us from this collateral crisis? Does a collateral crisis exist? Stay tuned

pasmurf's picture

so this happens on the day that Dimon is thrown under the bus by Drew? JPMorgan and Bank of NY are the main counterparties to the repo market. Fascinating stuff on wikipedia including the FT 2010 article about how repo is not being touched by Dodd-Frank even though it is huge business.  Is this the part of the market that ZH refers as the shadow banking arena?

I don't think you could have this rally with Glass Steagall in place. Just starting to grasp basics here, perhaps.    10year treasuries close down .37 on Stockcharts.com.  Looks like an engulfing candlestick, a reversal?

So could it be a foreign bank who has this CUSIP?

jimmyjames's picture

If the ongoing repo super-specialness persists, beware: as it will be the first time since Lehman that cracks have appeared in the very fragile shadow banking system. And shadow banking is perhaps the one key aspect of financial markets that has remained untouched since the great financial crisis, and also happens to be the critical nexus that allows Dealers to transform reserves into risk-asset purchasing dry powder. 

Should systemic weakness suddenly spread through repo, and thus shadow banking, run.


Sounds a bit like massive deflation-should shadow banking "assets" be marked to market?

dunce's picture

Every time i see the theme "rotation", i can not help but wonder if that is such an obviously smart thing to do, who is taking the dumb side of the trade? Are index funds and ETFs somehow obligated to be the the other side by the nature of their design? Does their existence facilitate market churning? Could they be amplifying price swings by automatically re-balancing, for example suppose a company missed its earnings estimate and dropped 4% as it sold off, the the indexers sold more to re-balance, putting more selling pressure on the stock or the reverse happening on an earnings surprise.