Between a renewed demand for the relative geopolitical 'safety' of US Treasuries and the dismal US macro data starting to renew 'hopes' that the Taper will be delayed, the scarcity of high-quality collateral [3] and plunging liquidity [4] (thanks to the Fed's ongoing envelopment of the US bond market) has once again driven the 'belly' of the US Treasury market to trade 'special'.
[5]
As Stone & McCarthy notes, repo has been tightening up overall, and the 2-year, 5-Year, 7-year, and 10-year are all also trading with negative handles this morning, with the 7-year getting more special ahead of this week's auction. This 'specialness' will once again raise concerns about the Fed having 'broken' the market (and as we noted here) may be further ammo to scare Bernanke straight [6] (encouraging some degree of Taper in the Treasury buying even if the consensus believes economically we can't withstand it).
[7]
Table: Stone & McCarthy