Repos Fails and the TSLF
In the repo market, we could say that the entire Treasuries market is on “special.” The TSLF will for a few weeks at best.
The repo market is hoping the TSLF auction will clear up the Treasury collateral shortage and fail situation.
The Fed announced the first TSLF (Term Securities Lending Facility) will be Thursday for $75 billion and settle on Friday, March 28th.
June 30 term collateral rates moved from 1.25% lastThursday to 1.50% yesterday.
This means the market expects the flood of Treasurys settling on Friday to clean up shortages and fails.
However, there are still factors working againstthe new liquidity. The fail situation is getting worse. Fails are increasing across the curve, but especially in the 5 year sector.
As we approach quarter-end, more securities will bepulled from the market. In fact, anyone contemplating pullingsecurities for quarter-end is probably doing it now, expectingit to take a few days to actually get the securities.
Until Friday,securities will continue to fail. After Friday, we will see.
Thanks Stan Jonas.
“Special” means trading at low repo rate because of a shortage.