Fails-to-Deliver In the Treasury Market Rising Sharply
From ZeroHedge:
As Barclays' Joe Abate warns, delivery fails in the Treasury market have surged recently.
While not at the scale of the 2008 crisis yet, we suspect the spike is
what is panicking the Fed to say "the market is wrong", talk up
short-end rates, and implore the public to sell-sell-sell their bonds.
The Fed's market domination has meant massive collateral shortages (as we have detailed previously) and now more even that during last year's taper-tantrum, the repo market is trouble.
The fails are greater than during last year's taper tantrum.
But well below the 2008 crisis levels (for now)
Which is why The Fed is in panic mode to get everyone selling bonds.
As Abate write in his note,
Delivery fails in the Treasury market have surged recently. On
Monday, the DTCC reported that incomplete deliveries reached a 52-week
high at $120bn (Figure 1). And a week earlier, Treasury fails – as
measured by the Federal Reserve – exceeded 6% of daily dealer Treasury
transactions volumes. By contrast, usage of the Fed’s securities lending
program has been relatively constant at around $15bn/day. Recall that
each day the Fed auctions securities from its securities portfolio (at a
5bp fee) for dealers to borrow overnight to cover their shorts. In
effect, the securities lending program is a backstop source of specific
issue supply that dealers can access temporarily to prevent market
disruptions caused by fails or incomplete deliveries.
But what if the Fed
does not own any of the issues that dealers need? Indeed, this appears
to be driving the surge in recent fails, which have been concentrated in
the OTR 5s and 10s. Operation Twist and the sale of all the Fed’s
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