Treasury Traders Paid to Borrow as Fed Examines Repos

[blazespinnaker]

http://www.bloomberg.com/apps/news?p...Eg&refer=bonds


"A week later the Treasury Market Practices Group recommended imposing a penalty rate that equals either 3 percent minus the Fed’s target rate for overnight loans between banks, or zero, whichever is greater. The central bank’s target is 1 percent. The TMPG said it plans to discuss by Jan. 5 a potential plan to implement the measures."

There ya go, I knew they could do it.

[tsetsefly]

Re: Treasury Traders Paid to Borrow as Fed Examines Repos

pardon my ignorance, but , I dont get it???

why has their been a "failure" to deliver securities?

[blazespinnaker]

Re: Treasury Traders Paid to Borrow as Fed Examines Repos

I believe this paragraph explains the reason:

Treasuries are in such high demand that investors are lending cash for next to nothing to obtain the securities as collateral through so-called repos, which dealers use to finance their holdings. The problem is many parties involved in repos aren’t delivering the bonds because there is no penalty for not doing so, causing “fails” to exceed $5 trillion, according to the Federal Reserve Bank of New York.

I think Metalman is the resident expert on repos, maybe he can chime in.