While stocks continue to surge to recorder higs on ever lower volume, as algos ignite each-other's momentum, interpreting the Yellen speech in whatever way will lead to the S&P hitting Goldman's 2016 year end target of 2200 by the end of the quarter, other asset markets continue to trade in a bizarre and outright deformed manner. Case in point, the Treasury curve, where according to the latest repo data from Stone McCarthy, there is now a historic shortage of collateral in the short end of the curve.
To wit: the 5-year note is at -174 basis points this morning, the tightest it has been since September. The 2-year note, at -279 basis points, is the tightest since at least 2009. Both the 2-year and 5-year notes have traded very tightly in the past, though today's values are extremely tight for both. It is worth mentioning that it is rare for both to trade so tight so close together.
There is hope that the negative repo rate in the 2 Year will moderate following today's 2 Year auction, however, that does not explain why both the 5 Year and now, the 10 Year are all special as well.
And since by now it is mostly central banks intervening in the bond market, it has become meaningless to attempt to infer what is causing this epic shortage of underlying paper (which is the only conclusion one can derive) and instead the only option is to sit back and watch and see how this all plays out.