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Trouble in Treasuries Market

A shortage of benchmark 10-year Treasuries is triggering a surge in unsettled trades, which have soared to 'taper tantrum' levels.

By Liz Capo McCormick, Bloomberg | Updated on March 14, 2016

Failure to deliver for all 10-year notes rose in the week ended March 2 to US$32.3 billion, from $132 million the week before, the latest data from the Federal Reserve Bank of New York show. The figure is the highest since June 2013, when Treasuries tumbled after then-Fed Chairman Ben S. Bernanke signaled the central bank might slow its bond buying, an episode dubbed the “taper tantrum.”

There is a history of rising demand for specific maturities in the repurchase-agreement (repo) market in the days just before auctions as traders sell—or go short. Yet this time, the phenomenon was apparent well before the government issued 10-year notes on March 9. So many traders were amassing short bets on the on-the-run note maturing in February 2026 that its repo rate was pinned near negative 3 percent for much of the week, leaving it “on special” in trader parlance. A rush of corporate-debt issuance was partly to blame, according to Peter Tchir at Brean Capital LLC.

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