Wondering why the current 10Y Treasury note is now trading special in repo? Look no further than the following visualizations. The fact that overnight repo on that bond is now at its limit (since 3% is the penalty rate for failure to deliver) strongly suggests the collateral shortage we have been warning of is becoming increasingly severe. Of the nearby bonds, The Fed already owns the maximum 70% of the 8 3/4% of 8/15/20, the 7 7/8% of 2/15/21, the 8 1/8% of 5/15/21, the 8 1/8% of 8/15/21, and the 8% of 11/15/21...
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Perhaps this is why so many of the Fed heads are starting to try and jawbone back the exuberance...
Exponentially rising lines on charts, endless '0's in a spreadsheet, and asset-class valuations that beggar belief dominate one's mind when the Fed is considered. In two wonderfully simple brief clips, Stone McCarthy visualizes the growth in Fed holdings by security type and the average maturity of the central bank's balance sheet. The calm before the storm - before the pending chaos - is evident when one considers just how this will all get unwound (let alone tapered [4]).
The evolution of Fed Holdings by Security Type...
The evolution of the Average Maturity of Fed Holdings...
The evolution