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Biggest Shortage Of US 10-Year Treasurys Since June 2014
We are glad to see that after beating the drum on the unprecedented bond market liquidity (and underlying) shortage for over two and a half years (and here and here and here), not only famous hedge fund managers but the mainstream media is now sounding the alarm over this most critical of topics to the US market, with the most recent "exposition" coming courtesy of the WSJ's "Broken Bond Market Complicates Fed’s Plan to Raise Rates."
So as a helpful hint for the WSJ and their peers on what to keep an eye for next, one useful place (another one that has been covered here since roughly 2013) is the daily shortage of Treasury collateral as manifested by collapsing rates in the repo market, where just today we saw the repo tighten "immensely" in the words of Stone McCarthy, plunging to super special rates of -224 bps, which implies the liquidity shortage for the On The Run 10Y is now the worst since June of 2014. Granted, there is a 10Y auction tomorrow, settling on April 15, which is usually heavily shorted into, however there have been many 10Y auction in the past 10 months, and none have seen such a collateral squeeze so it is indeed safe to say that the liquidity shortage across the US curve has virtually never been worse.

And confirming that it is not just tomorrow's 10Y auction that is the catalyst, a breakdown of repo rates by maturity bucket shows that both the 3 and 5 year are once again trading special, with the 2 Year just barely exiting negative repo territory after being there for the past 2 days.

At this rate the entire US bond curve will soon have a structural shortage as more foreign central banks quietly scramble to buy up all US paper, something that we noted over the weekend when we showed that the amount of Treasury paper held in custody at the Fed rose by the most ever in the past week.
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bullish
At this rate the entire US bond curve will soon have a structural shortage as more foreign central banks quietly scramble to buy up all US paper
...and once everyone is in the same boat, we can sink the boat. #YouWonCentralBanking
This will be a forced return to a hard money standard... That's why they want them all, but recent history shows most of the time it blows up in their faces. Feces...
Remember all the dumb dumds yelling about a dollar collapse?
This grants the Fed permission to go ahead with QE4++++
The new rule seem to be fuck everything up, then wonder why it's fucked up. Rinse, lather, repeat...
So which TBTF bank blinks first???
demanding collateral can lead to a Since Lehman TM type event.
Although it was only 7 years ago, corporate memories are still ftresh. The firm without good collateral is the musical chairs of finance - no one wants to be left with hand held out.
FINRA (a securities industry regulator) requires same day settlements. My firm had a collateral call today on some of our mortgage hedges. If you don't pay, you can't play.
NoVa
yep... the great do over... they just have to get Russia and China on board. I wonder what that will cost.
Ahhh, we collaterized some folks -
Don't worry Obama can spend a few more trillion dollars and solve the 10y liquidity problem
Next auction for $2 trillion. Where is your shortage now mutha fuckers?
Followed by a call to Janet "We're gonna need a QE4"
Thought he was going to say since Lehman, just kidding they will not let the market deflate until they are ready and they are not ready ...
It's ALL just a bunch of worthless paper promises, just print up more who gives a shit?
I thought foreigners would refuse to hold US treasurys causing an unstable spike in interest rates. When did that stop being a thing? What about your inflation apocolypse predictions. Any minute now, right?
I've been here a while and the storyline a while back was that the US dollar would, despite everything, gain strength as the cleanest shirt in the shit pile. That was based on Japan and Europe both of which have yet to implode. The articles on ZH talking about the end of the dollar often have that long term historical chart going back a 1000+ years so I don't think ZH thinks the US dollar will disappear short term.
srambling before the big one. its inevitable at this point. just a matter of days/weeks.
If only the Treasury basis traders could make main street understand...
If there's a shortage, it means demand is exceeding supply, but where is the demand coming from? Officially, not the Fed anymore, as QE has stopped/paused. So (1) foreign Big Money, including CBs, looking for money-good collateral with non-negative interest rates, and (2) punters looking to short USTs, who have to borrow UST's first, before they can sell them.
Keep an eye on that last group. Often, a broker won't have UST's on hand to lend to clients who want to go short, but will allow the trade to go through anyway, pretending that somehow they'll be able to come up with the USTs before the settlement date. Often, they can't, and you will see the Fails to Deliver increasing. This, along with the repo rate, is a good indicator that UST shortages are getting out of hand.
Here's an article from 2008, (when public debt was "only" $10.3 trillion) which can probably be dusted off and used again any day now. http://www.investmentnews.com/article/20081019/REG/310209975/delivery-fa...
Guys the FED cannot do anymore QE in terms of US TReasuries, this will exacerbate the already negative repo and liquidity. The only reason the FED stopped QE was because structurally they have pushed the limits of buying an already scarce security. Eventually the Bond market in terms of yield will have to represent the reality of no offers to buy, one day the bond will be limit up with zero sellers, until then in bond land we go up 5 handles, back down 3 handles, up 5 handles back down 3 handles till we reach a point a certain point in time, what that point is I don't know, but I do know over the next 15 to 20 years, Equities will not beat the return of the bond market, for me its physically and fundamentally impossible, because the structure of the marketplace has been manipulated and nature always restores the balance in the long run.