U.S. 10-year note borrowing cost in repo market ends negative for 5th day

The drop in repo rates followed a surge in short-positioning on U.S. 10-year Treasuries, as expectations grow for a faster-than-expected U.S. recovery.

  
U.S. One dollar banknotes are seen in front of displayed stock graph in this illustration taken, February 8, 2021.

U.S. One dollar banknotes are seen in front of displayed stock graph in this illustration taken, February 8, 2021.

REUTERS/Dado Ruvic/Illustration

NEW YORK  - The rate to borrow U.S. 10-year Treasuries in the repurchase agreement market closed negative for a fifth straight session on Friday, as demand for the benchmark note exceeded supply, with investors increasing bets the 10-year yield will rise further.

The 10-year repo rate ended at -1.90%, from -0.50% late Thursday, broker-dealer Curvature Securities said. The 10-year overnight rate hit as low as -3.5% on Friday. That means some market participants were willing to pay interest on money lent to borrow the ten-year note.

The drop in repo rates followed a surge in short-positioning on U.S. 10-year Treasuries, as expectations grow for a faster-than-expected U.S. recovery. To short the 10-year notes, investors need to borrow them from entities, such as money market funds, sell them, and buy them back later.

"This likely reflects a persistent short base in the market, with investors betting on Treasury yields continuing to rise," said Dan Belton, fixed income strategist, at BMO Capital in Chicago.

"This upward pressure on rates should only become stronger with fiscal stimulus and strengthening economic data," he added.

Speculators' net short bets on U.S. 10-year Treasury note futures rose in the latest week to 95,611 contracts in the week ended March 2nd, the highest since May 2020, according to Commodity Futures Trading Commission data released on Friday.  

The borrowing rate has been negative since Monday, dealers said, hitting a low of -4.25% for the week on Thursday. That rate rose late in that session as the Federal Reserve loaned $8.7 billion of its 10-year notes to borrowers.

Scott Skyrm, executive vice president in fixed income and repo at Curvature Securities said since 2018, the 10-year note overnight rate traded at -3.0% and below three times: -4.25% on Thursday, -3.50% in June 2020, and -5.75% in mid-March last year as the new coronavirus started to weaken the global economy.

Friday's upbeat U.S. jobs report, which showed 379,000 jobs created last month, further cemented expectations of a rise in the 10-year note, and likely boosted 10-year shorts. 

The U.S. 10-year climbed to as high as 1.625%, the highest since February 2012, in the wake of the jobs data.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by John Stonestreet, Barbara Lewis and Sonya Hepinstall) ((gertrude.chavez@thomsonreuters.com; 646-301-4124; Reuters Messaging: rm://gertrude.chavez.reuters.com@reuters.net))

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