The wave of US Treasury bond trading breaks payment records, reaching the highest level since 2017

According to data from the New York Federal Reserve, the volume of failed US Treasury bond transactions with a 10-year maturity that could not be settled on time surged to $30.5 billion in the week ending December 10th, the highest level since 2017. The main reason stems from the Fed’s balance sheet reduction process, which has significantly decreased the supply of bonds in the market.

The failed transactions mainly involve the newly issued 10-year bonds from the $42 billion auction in November. The severe shortage has driven repo rates into negative territory, almost guaranteeing settlement failures. Expectations that additional issuance in mid-December would ease the pressure did not materialize.

Due to the Fed reinvesting less as maturing bonds decline and being limited by the reinvestment cap, the market lacks its usual support. As a result, traders face difficulties borrowing bonds, leading to a sharp increase in “failed” transactions. Meanwhile, bond yields moved only slightly after the holiday, as US economic data continued to show strength.