WSJ: Crowded Bet Against 10-Year Treasury Hits Repo Market

Investor bets on rising U.S. interest rates are testing the short-term cash markets that serve as the financial system’s plumbing.

Hedge funds and other institutional investors are paying an annual rate of as much as 4% to borrow the most recent issue of the 10-year U.S. Treasury note in the market for repurchase agreements, or repos. These hedge funds and others want to borrow and sell the bonds now in a wager that they can buy them back later for less, as rising U.S. rates push bond prices lower.

The 10-year Treasury yield settled at 1.594% Monday, its highest level in more than a year, up from 0.913% at the end of 2020.

Usually, those hedge funds, central banks and other institutions lending in the repo market receive both Treasurys, which function as collateral, and interest payments in exchange for providing overnight cash. Now they are paying to borrow Treasurys and part with cash. The inversion—which last reached these levels a decade ago—has caught traders and investors off guard.

The full article is available at

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