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.