U.S. Treasury Shorts Pounded into the Ground

By: Anthony_Cherniawski

This has got to be a decline for the records. There is nothing else like it in this chart. The treasury shorts are getting nailed.

ZeroHedge reports, “Over the past week we have been following a disturbing development in the US Treasury market: while the repo rate on the 10Y has been sliding deep into negative territory for a while, on Friday it finally hit the "fails charge" of -3.00%, suggesting there is a massive shortage of Treasury paper as a result of wholesale shorting by various market participants.

Back then we explained the move as follows: "[as of this moment] the repo rate can't go any lower, and any demands to cover Treasury shorts are met with "Delivery Failure" notices. For those who are unfamiliar, a "Delivery Failure"occurs when one party fails to deliver a U.S. Treasury security, Agency Debt or Agency MBS to another party by the date previously agreed by the parties (Sifma has more). It also means that there is an unprecedented (and based on the historical data, record) amount of shorts who would rather pay the fails charge than to cover their positions on the delivery demand, or alternatively, there is simply not enough Treasurys in the private market that are not locked up in short positions. Finally, this means that the panicked scramble by various entities, including central banks, to short US Treasurys continues unabated."

…and so it goes. The final plunge in TNX may come from Treasury shorts getting pounded into the ground.

Regards,

Tony

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