Failed Treasury Trades Surge to Highest Since Financial Crisis

  • Uncompleted deals rise as 10-year note sought in repo
  • `Special' financing status has eased since new debt was sold

A shortage of benchmark 10-year notes in the market for borrowing and lending U.S. government debt caused uncompleted trades to surge last week to the highest since the financial crisis.

Total settlement delivery failures for all Treasuries, excluding inflation-protected securities, were $456 billion for the week ended March 9, the most since 2008, when fails set a record $2.7 trillion, Federal Reserve Bank of New York data show. So-called fails for 10-year notes climbed last week to $63.3 billion, from $32.3 billion the week before. It was the highest since at least April 2013, when the Fed began reporting the figures for specific maturities.

Trades involving the benchmark 10-year note were going uncompleted this month as the cost to obtain them in the repurchase-agreement market rose before the Treasury’s auction of the maturity on March 9.

The repo rates were locked near negative 3 percent for days before the sale and matched the 3 percent penalty that’s imposed on unsettled trades -- causing more traders to opt not to make good on transactions. Since the auctioned notes settled on March 15, filtering into the market, repo rates have risen back above zero and shortages have eased.

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