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Massive Shortage Of US Treasury Paper As 10 Year Plunges To -2.20% In Repo
Yesterday, after the impressive 30 Year auction which as we explained performed as well as it did, due to a persistent short overhang resulting in a -0.35 bps repo rate, we noted something concerning: using SMRA data, we showed that benchmark 10Y has been trading negative in repo virtually all of 2015.
10Y is negative repo pretty much constantly now pic.twitter.com/TBrcfZ4b97
— zerohedge (@zerohedge) June 11, 2015
One day later, the shortage has gotten out of hand as following the Wednesday 10Y auction and ahead of its Monday settlement, there is not an On The Run cash bond to be found as all of them have been either removed from the repo market, or have been shorted.
From SMRA:
The 10-year note is trading even tighter today than it was yesterday. At -220 basis points, this is the tightest that the 10-year note has been since April. After the auction settlement Monday, the current 10-year note will become the off the run 10-year note. If it maintains this much pressure it result in an extremely tight off the run 10-year issue again. The new 10-year note will likely trade near the GC rate.
Indicatively, today's shortage is massive, and putting it in context, there have been only two previous comparable squeezes in the repo market: one year ago, and in April when the 10Y was trading at its tights of the year well under 2%.
Recall a few months ago, when a comparable gold collateral shortage hit unprecedented levels, the LBMA decided to simply do away entirely with the GOFO metric which measures physical gold scarcity, thus avoiding hinting at how big a potential squeeze in gold could be if the shorting central bank (mostly the BOJ these days) were to be caught out.
As for US Treasuries, at some point this huge short will be cleared out with a violent reaction in the underlying one way or another.
However, while we know now just how substantial the shorting activity in the 10Y is, a better question is who is behind it: hedge funds or central banks. If the letter, don't expect to find out - just like PIMCO, central banks can just "sell" to themselves without ever touching, and disrupting the market. If it is someone else who can't print money, then it may get very interesting soon.
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I don't know what any of that means I just buy stocks.
@order66 : It's not stocks but stawks. Gotta get it right otherwise you could lose your arse in the markets.
Disclosure: I'm long ink, paper and high speed printers.
Next they'll be auctioning Treasuries at Christie's as a rarity.
$100 trillion each (same price as an egg).
It appears to me to be the world's most desperate marketing campaign to convince the market that this paper is rare.
Pssst. Buy Treasuries, they ain't making any more - errr.
It appears to me, there is a major Derivatives problem behind the curtain, sucking up the "Safety and Security" of Treasuries as increased collateral? Is DoucheBank about to implode?
my thoughts as well.
and at what point is collateral the collateral of collateral still accepted as collateral from the dark pools from whence it's flushed and then restuffed and not cause back-flow ...i think we are nearing that event-horizon. in layman's terms: tptb, your septic tank is overflowing...or, as uncle eddie would say, "shitter's full."
https://www.youtube.com/watch?v=gd_qt_ijuSs
merry xmas,
janus
Derivatives are the killer who all the neighbors say "He was such a nice, quiet young man. I just don't understand what happened"
Ditto
^^^this. Remember folks, new money creation has not required any real collateral for some 40+ years now.
a lot of people have been asking the bureau of engraving and printing about the printing of treasurys, since they are now in such short supply
we are doing the best we can with the limited supply of ink and paper and skilled labor
hugs,
larry
https://en.wikipedia.org/wiki/Larry_R._Felix
Repo rates have traded below zero frequently since May 2009, when a 3 percentage point penalty for failing to meet security delivery obligations was put in place. The fee, instituted to reduce failed trades, means that at a repo rate below negative 3 percent it is more economical for a counterparty to fail to deliver than to obtain the needed security in the repo market.
ironically, 10s used to frequently trade down to 0% in the days of "normal" fed funds but no one paid attention. now that rates are negative (but total spread is actually lower) people notice because of the minus sign.
nothing to see here.
I disaree. Government paper trading at zero on occassion for truly "temporary" emergency issues is acceptable. Emergencies don't last 7 fucking years.
When rates, especially real rates, go negative and stay there, all underlying and associated paper is fucked, period.
I understand your point but my comment of zero vs negative was in the context of repo (borrowing) rates, not the actual yields on the securities.
Useless info from investopedia? That doesn't help with his question at all...
In itself this is largely irrelevent. It is, however, symptomatic of the impact of regulation on available capital (leverage) from banks across many businesses. They are less willing to offer credit (use capital) and so those who need it demand it by upping the price they will pay.
Sound and fury signfying nothing
Regulation is the problem? LOL! You stupid fuck, we would be far better off with Glass-Steagall.
The problem is that new money creation and banking in general have fundamentally changed, neither is attached to real RISK or the real world anymore.
Fuck the bankers and financiers! They are now nothing but useless, overcompensated, criminal middlemen between the printer/computer and the producer/consumer in the real economy.
They created "mark to fantasy" accounting, fuck em, let them die by mark to fantasy. The only accounting that will fix anything now is when the public accounts for their fucking heads.
Agree on Glass Steagall and didnt say regulation is a problem.
banks who are lending cash in exchange for that 10yr paper are actually paying 2% for the privilege...normally they get payed to hold that worthless crap. This illustrates the "rarity" or demand for for 10yrs. everyone seems to be on the same side of this trade..or a few big players...
You might have heard the expression that stocks are dumb money while bonds are the smart money. The action in the bond market normally warns of up coming disruptions in the stock and general market. The tightnesss in the Treasury market can be due to shorting by hedge funds as the or it could be a sign that the smart money is running to perceived safety. If the German Bunds market is also tight then watch out. Something is about to happen.
the trade now is the Bund & 10yr T very strong correlation. Those prices are moving in almost perfect correlation for the past few weeks.
When the Bund rises above 90 bps, the CBs take it back below to crush what shorts may remain in that position.
your comment on flight to safety and security is very true. Something is up out there -
Nova
AS far as I understand the 10y is used as collateral. If there is a shortage yield drops (i.e price goes up)
The new improved Treasury Paper ... now as soft as Charmin ...
....both made up of tiny shit eating pillows.
lol
Does it matter? In the end its just a shell game and the FED will need to buy all the debt. When China and Russia have all the gold and Ft. Knox is openned and the vaults are empty, or more likely found to be full of gold plated tungsten bars, what happens then? Can Caitlyn save us?
"And it's (Caitlyn) Jenner for the gold!" Yeah, something's very messed up here. Will they put shim on the wheaties box? http://www.tmz.com/2015/06/01/wheaties-silent-caitlyn-jenner-support-bruce/
Proofreader needed...
There's NEVER a shortage of US "paper"...
Good luck next season. From an AFCB fan Woohoo :)))))
TP = Treasury Paper
TP = Toilet Paper
Coincidence? I don't think so.
Where do you get the Treasury Repo Rates?
Do you need to subscribe to Bloomberg????
Does the Treas publish these numbers each morning?????
WHERE
The first rule of "Treasury Repo" is: You don't talk about Treasury Repo.
you need to subscribe to BB.
a very good free site is CMEGroup - at least for Treasuries >
http://www.cmegroup.com/trading/products/#pageNumber=1&sortField=oi&sort...
the CME dosen't have current daily repo rates.
I guess for that info you need to pay.
I'd like to be able to view that chart of all rates...FED Funds thru 30 Y that is published at 8:30AM
my trade desk guys use BB.
the trade now is not reverse repos, but Bund & 10yr T very strong correlation. Those are moving in almost perfect correlation.
When the Bund rises above 90 bps, the CBs take it back below.
"Head for the hills!"
Treasuries are only good for laundering money.
It's all ball bearings these days...
"So I wheeled in in my latest model Oldsmo-Buick...
Jim Willie is talking about this, “Things are starting to break!”:
06.10.2015 Jim Willie: Derivatives accidents, QE $1Trillion per quarter, Petrodollar dismantling.. https://www.youtube.com/watch?v=nW6M4C22E20
I'll say. "It's called New York City." Thanks for playing, have a nice day.
"If it is someone else who can't print money, then it may get very interesting soon."
HINT: it's not.
define interesting! :-)
I wish to rotate temporarily 400k in stock indexes that since 2008 have appreciated vastly due to FED QE. With the hint of a FED interest hikes I see the top now. The advise a bunch of you gave me was good, I like the one where I buy laddered treasuries of various denominations. Percentage split would be 70-75% treasuries and 30-25% in physical gold and silver. should I consider any EFT? I worry about redemption of gold EFT.
Lastly what is the best place locally or in Texas that I can secure my physical. I will lose some gold and silver in boating accident.... chuckle
Little help please on my thoughts!
Cancer update, I have a rare cancer which is terminal. Good news, after 2 months of shitty chemo, all my tumors have shrunk by 29%. I am using a standard chemo protocol for a similar cancer.
A few comments pegged me as an Asian in San Antonio... Heh. I was born in San Antonio, went to School at UT Austin and married a Dallas girl 45 years ago. I am white and us Ying-Yang as a handle here for fun and I believe in yin-yang universally.
Ying-Yang, check out the following:
http://www.jmbullion.com/local/texas/
https://www.texmetals.com
The first link has links to coin brokers in the Texas metro areas.
The second link is a company located in Shiner, Tx.
Thanks Eg, will do!
Sorry about the cancer.
Personally if I get cancer, I'm gonna start with hemp oil and do chemo after if I need to. Check out Rick Simpsons videos Phoenix Tears if you're curious.
Thanks AJ, in addition to chemo, I am doing the cancer D3 and cannabidiol, or CBD - a non-psychoactive compound that is regarded by some as the medical discovery of the 21st century, and with good reason.
After 2 months of chemo the Oncologist was surprised that I had a 29% shrinkage. Heh, heh, he does not know about the oil.
Keep it up. I think most cancers are induced by outside agents, eliminate those agents and make progress fighting the existing disease and positive outcomes rise dramatically. I can tell you have the positive attitude as well which is also a beneficial. Best Wishes.
Cancer update, I have a rare cancer which is terminal. Good news, after 2 months of shitty chemo, all my tumors have shrunk by 29%. I am using a standard chemo protocol for a similar cancer.
heal yourself...juice raw flowering cannabis...make cannabis oil and eat it every day...life is terminal but you do have some control here...
Thanks brother, this is exactly what I have been doing for 2 months.
"Cancer update, I have a rare cancer which is terminal. Good news, after 2 months of shitty chemo, all my tumors have shrunk by 29%. I am using a standard chemo protocol for a similar cancer."
Try to avoid carbohydrates and sugars, and make sure you get plenty of Vitamin C and Vitamin D. Not a cure, but should help. My best wishes that it goes into full remission.
Thanks AG no carbs for me and I have reduced sugar other than those from certain fresh fruits. They taste really good. All store bought foods that have high sugars taste too sweet to eat. Forget carbonated drinks, way too sweet. Carbs taste like cardboard. Yuck.
Sorry to hear about your condition Ying-Yang . Glad to hear your responding to chemo. I always enjoy your posts, and I use Linux pretty much 100% of time now, thanks to you turning me in that direction.
Be well my friend. :-D
Nice things to say, thank you. Likewise you have helped me much with your comments over the years!
I love you like a brother!
Complete remissions DO happen, ususally in the 7-13% range of total incidence. There are lots of experimental therapies around, some Western, some Eastern. I'd suggest against a round of alkylator (basic form of chemo that's been around since the 60s), unless it's satraplatin.
Thanks GN, I read up on alkylator and chose to pass.... very sketchy data.
Keep fighting mate
The chart appears to explain the reason. Its a seasonal related issue. Meaning, look at June 2014 and you will also see a very negative value as well...
In short, there are allot of problems right now, but having TBTF banks buying negative paper which they will eventually dump on the FED does not appear to be one of them..
just window dressing at quarter ends. balance sheets have to look just so for the regulators.
So, what we're seeing is the quarterly cost to cook the books?
Not to worry. Fed will reverse repo their treasury inventory by the end of the year.
Exactly. that is when they will raise the Fed funds to 25 bps.
Sorta reminds me of a modern-day automobile's emissions control system - it's completely 'sealed'. You get intake, combustion, power, exhaust - WITH the added 'benefit' of an emissions re-circulation/filtration/treated system that, out the rear end comes (almost) 'clean' air... Just replace all of the above components with '$$$' and you can see the correlation.
What could possibly go wrong?
/s
I'd wager a modest sum the dollar won't be around in 10 years.
30 years is Beyond Thunderdome crazy talk.
Sigh, the world is collapsing AGAIN on ZH - any minute now, really, this could be the BIG ONE! The pound survived the fall of Pax Brittania, the dollar will abide. The world reserve currency may shift to SDR, but the dollar will remain a central part of it.
DIVERSIFY!
The dollar will abide because the pound has {currently at about 4% of global reserves, by the way}?
I'll also wager you don't really grasp the dangers posed by debt to the FRN.
Robert Triffin - on your {re}reading list should be.
For the laymen among the readers here, myself included, could we have a concise explanation of what this means?
Yes please! If rotate out of equities and wish to preserve capital only, and I directly buy laddered treasuries between now and September, what is my downside. My thoughts are stocks will correct, dollar will swing widely, and treasuries should be safe unless US defaults in some way. What is risk of capital controls being applied to my treasuries. Also should I buy only one type, or a mix of bills, notes or bonds.
@Ying-Yang
Glad to hear of your improvement..............go Y-Y
Your comments on thread seem very up beat for a guy in your position.
Take care and a big thumbs up on your endeavors, health and monetry affairs.
XAU XAG
they could orphan you, but maybe the market will do that anyway. although with all the etfs and derivatives it hard to imagine you couldnt get at the principle, its like those ads for cashing in annuties or structured settlements. everything is liquidity crazy, but you should worry about the banana republic solution, which is to give you a haircut. america is really down the rathole if that happens.more likely they'll let the dollar do the dirty work, so hedge the currency (with an etf) and then watch the LTCM story play out all over again. you want to ladder something, ladder gold
Repo is a loan.
Treasuries are the collateral. Negative interest rate means the borrower is getting paid to borrow if they post treasuries. Treasuries are in high demand for some reason.
Yes, and like the PM "market", only a chosen few jews can play with PMs at their real value.
For example, I have some treasuries, why can't I get paid to take out this loan?
The world is in fact experiencing a "let the majority eat cake" monetary experiment. It will end the same way it did the last time France tried such an experiement.
okay so treasuries are scarce, fewer banks have them to bring to the repo window, so the fed? is paying any bank with treasuries who want to make a repo or short term loan. whats in it for them? its like my bank wants to make car loans but no one has any collateral, so i bring my collateral and they pay me to make a car loan, for the use of the collateral. with all the QE you cant convince me collateral is somehow precious.
The QE purchased half the treasuries in the market. There's a limited stock of them.
Treasuries are collateral. Theyre Tier 1 collateral. You use them to leverage your entire book off of. You must maintain that for quarter ends show you have treasuries on your books. This is the scheme. The government allows you to create money. You agree to buy their bonds and hold them on your books.
If you've shorted (sold) your collateral, you need to get it back. Therefore you offer to buy them for a short period of time. You buy them at $10,000. You get treasuries. You agree to sell them back after so much time. You sell it back for less than $10,000 effectively a negative interest rate.
Does this mean their paying people to borrow money against treasuries?
Oops sorry never mind thanks Catullus
i dont really understand this, repo is line of credit 30 days usually, does this mean the banks can secure this line and get paid for doing it? and if each time they roll over their paper, they get paid again?
Repo is usually overnight. An institution with cash lends it to one without cash in exchange for bonds as collateral, basically funding the counterparty's working capital/ business needs. Think of it like this: I have $100 and don't need it. You need it today, and will get paid tomorrow and you have $102 worth of treasuries. Give me the treasuries, and you can use my cash for a nite. Tomorrow, I'll give you your bonds back, and you give me $100.01. Ususally. Typically roll it every night and over time, repo beats money market or any other overnight cash instrument. Commercial paper is usually better, but that is often 15 day plus type maturities.
No way I do that if you only give me $99.99. It used to happen at quarter end (Mar, Jun, Sep, Dec) and I thought it was some market maker demand for the bond for options or futures expiry or something. Don't understand why it's every month...
Repo on U.S. bonds can also be intra-day. And yes daisy chains of lending the same bond lead to an inability to return the bond and rolling over of the deals until they can be returned sometimes with penalties for doing so. Typically a bond is relent at least five times during a day so its collateral value along the daisy chain is leveraged by how many times its lent. That's the 'beauty' of repo. Which blows up when someone down the chain actually fails....
Such a high level of being short the ten years is unusual historically and it seems odd nothing is being done about it. Which again leads back to the FED as the cause. Someone is making a good buck at this. Who could corner the 10 years without consequences? - The Criminal Fed.
I remember the June 2014. Our repo broker quoted us negative, and I said no thanks. We just didn't put repo out for the night. She said it was happening more and more, and typically around quarter end. It means demand for that bond is so strong, there are probably settlements failling - no one is lending it. So, the rate to lend cash against that particular bond is negative. You (the cash investor) have to pay the borrower (collateral provider) to take your cash and send you the bonds. Any institution that actually does that is idiotic...
Now, still not quite sure why the quarter end - futures settlement probably. Regardless, persistent negative repo is a sign of a poorly functioning market...
Morgan Stanley is behind it? Or the fed sucking up bonds that would be ten years now creating an overall short situation versus the current. Usually when the ten year gets this short the Fed etc start asking who has them and they suddenly appear. Failing this action for some reason now its most likely the Fed that has made them short. If anyone cared the government could reissue ten years and blow this apparent corner right into the shitter. - But that's not happening is it.
It remains hilarious that with the around 2% rates in an environment of at least 2% inflation if it wasn't all distorted we have been living in a negative interest rate environment since 9/11 and everyone behaves as if this new normal is normal at all. DEFLATION is the new normal and under the current central bank regimes there is no way out of the Alice in Wonderland false reality. Utterly fucked up all along. No reason to lend or invest at artificially low rates while the Fed, The Corporations, The Wealthy continue in this circus of fake bookkeeping destroying the world economy.
If you want to know about Repo Call up ICAP"s repo desks, they control about %60 of the market and the 'inner' market. -Good luck with that.
P.S. the deals are in the five years by the way...