{"id":115531,"date":"2021-03-04T20:06:08","date_gmt":"2021-03-04T20:06:08","guid":{"rendered":"https:\/\/precoinnews.com\/?p=115531"},"modified":"2021-03-04T20:06:08","modified_gmt":"2021-03-04T20:06:08","slug":"cost-of-borrowing-u-s-treasuries-in-repo-market-goes-negative-indicating-stress-analysts","status":"publish","type":"post","link":"https:\/\/precoinnews.com\/markets\/cost-of-borrowing-u-s-treasuries-in-repo-market-goes-negative-indicating-stress-analysts\/","title":{"rendered":"Cost of borrowing U.S. Treasuries in repo market goes negative, indicating stress: analysts"},"content":{"rendered":"
NEW YORK (Reuters) – The cost of borrowing U.S. Treasuries in the overnight repurchase agreement, or repo market, went negative on Thursday, analysts said, caused by the recent bond market sell-off and suggesting stress in money markets.<\/p> That repo rate, which is typically positive, was between -0.03% to -0.04%, two analysts said.<\/p>\n Negative repo rates typically occur when a particular collateral security becomes in demand – in this case analysts pointed to the 10-year Treasury – or there is a reduced supply in the repo market. In order to borrow these securities, buyers have to tempt potential sellers with cheap cash or a repo rate that is less than the general collateral repo rate.<\/p>\n \u201cThis is yet another example of how stressed the markets are with the big selloff,\u201d said Gennadiy Goldberg, senior rates strategist, at TD Securities, referring to short-term lending markets.<\/p>\n The general collateral rate remained above zero on Thursday, however, at 0.05%. It did go negative last week at -0.05 basis points.<\/p>\n In the repo market, Wall Street\u2019s financial institutions borrow from money market funds and other investors and pledge their Treasuries and other securities they own as collateral.<\/p>\n Dan Belton, fixed income strategist, at BMO Capital said the U.S. 10-year note was \u201ctrading special\u201d in repo, meaning to lend cash to borrow the security, the lender must pay the current rate of negative three to four basis points.<\/p>\n Lenders in repo markets typically include money market funds, insurance companies, corporations, municipalities, central banks and commercial banks that have excess cash to invest.<\/p>\n On the other hand, dealers and depository institutions borrow cash against long positions in securities to finance their net inventory and balance sheet position.<\/p>\n TD\u2019s Goldberg said dealer positions in off-the-run, or older securities, have grown sharply with the selloff in Treasuries that pushed yields higher. Dealers have attempted to hedge this risk by selling on-the-run or newer securities.<\/p>\n \u201cThis has driven the cost of borrowing on-the-run Treasuries sharply lower and past the fail rate which is the penalty rate market participants pay if they cannot deliver a security,\u201d he added.<\/p>\n That so-called fail rate is -3%, BMO\u2019s Belton said.<\/p>\n