The cost of borrowing U.S. 10-year Treasuries in the overnight repurchase, or repo market, went deeply negative on Thursday, analysts said, as investors sought to short the notes, causing market stress.
The negative cost-to-borrow came as investors were shorting the notes in a bet that U.S. Treasury yields would continue to rise, on expectations of increased issuance to finance the U.S. stimulus package and on optimism on prospects of a recovery as the country emerges from the coronavirus pandemic. The repo market sees Wall Street's financial institutions borrow from money market funds and other investors and pledge their Treasuries and other securities they own as collateral. Lenders in repo markets typically include money market funds, insurance companies, corporations, municipalities, central banks and commercial banks that have excess cash to invest.
"There's general pressure on rates at the short end, the same themes that have been in place for a while," said Tom Simons, money market economist at Jefferies.