Currently a "short-squeeze" going on in some USTs so let's go over what this all means.
No, the 10yr won't open at -3% tomorrow. But, if you borrowed the 10yr in the repo market to go short, there is now not enough 'borrow' in some specific issues to roll your short position:
No, the 10yr won't open at -3% tomorrow. But, if you borrowed the 10yr in the repo market to go short, there is now not enough 'borrow' in some specific issues to roll your short position:
Since it's mainly affecting the on-the-run 10yr issue, I assume traders were happy to lend cash or other securities against that specific bond in repo (called a 'special' vs general collateral repo) and sell it short. Now, they must cover or pay the 3% fail-to-deliver penalty:
However, this is only a problem for a few repo traders caught with 'special' positions they would rather roll to avoid dealing with a fail-to-deliver. Once the they sort out their books for the day, this 'squeeze' will be over. There is however something else concerning here...
Later in the same story, it is also reported that general collateral rates traded negative tonight and the Fed RRP facility was tapped for a rather large $507M. This are more symptoms of the general shortage of short-term collateral many have been discussing lately:
So while the action in the 10yr may seem more dramatic, the general collateral rate and RRP are more important imo.
On the plus side, bills have not gone negative again since the month-end mania, so not everything is terrible, but short-term markets remain very tense...
On the plus side, bills have not gone negative again since the month-end mania, so not everything is terrible, but short-term markets remain very tense...
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