Benchmark 10-Year Treasury Fails Plunge as Note Shortage Eases

  • Uncompleted trades tumble following settlement of new debt
  • 'Special' financing rates for 10-year note have abated

Unsettled trades of benchmark 10-year Treasury notes plunged after additional securities sold by the government filtered into the market for borrowing and lending U.S. government debt.

Delivery failures for the most actively traded benchmark 10-year notes -- in short supply earlier this month -- plunged to $574 million on March 16, from $63.3 billion on March 9, according to Federal Reserve Bank of New York data. Fails had reached the highest since at least April 2013, when the Fed first began reporting the figures for specific maturities.

Shortages abated after the Treasury department’s sale of $20 billion of 10-year notes settled March 15, allowing the securities to work their way into the market and the hands of those seeking them to meet obligations. In the two weeks before settlement, repurchase agreement rates on the benchmark note were about negative 3 percent, making it more costly to obtain them in the funding market than the penalty charged for not making good on trades.

The repo rate on Thursday for the on the run 10-year security climbed to 0.41 percent as of 12 p.m. New York time, near the rate for general collateral repo, according to ICAP Plc data.

“It’s typical to see larger demand for Treasury collateral ahead of settlement dates and therefore to see fails rising into the settlement date,” said Rob Runyan, a Treasury department spokesman in Washington. “We don’t yet see reason to think there is anything too out of the ordinary here.”

Total cumulative settlement delivery failures for all Treasuries, excluding inflation-protected securities, were $452 billion for seven-day period ending March 16, compared with $456 billion a week earlier --- the most since 2008, Fed data shows. At its peak in 2008, fails reached a record $2.7 trillion.

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