Traders are betting on rising US bond yields, surging short positions driving up repurchase costs

The Zhitong Finance App learned that traders are betting that US Treasury yields will continue to rise, and the US financing market may face disturbances as a result.

A common way to bet on higher yields is to take a short position by borrowing a US Treasury bond and providing an overnight cash loan to the holder of the bond. When demand for a particular note or bond rises, the interest rate on this overnight cash loan often falls — becoming “special,” in market jargon.

This is already evident in the buyback market. According to Curvature Securities, the intraday interest rate for borrowing current 10-year US Treasury bonds was as low as 2.70%, closing at 3.75%.

In contrast, interest rates on unrestricted securities, or so-called general collateral US Treasury bonds, were reported at 3.86% in the intraday period, closing at 3.92%. This indicates that traders are willing to pay more to borrow certain US Treasury bonds than other collateral on the repurchase market.

What is unusual about the current “special” interest rate on US 10-year treasury bonds is that the note will be issued for the second time next week. The stock of this coin is already quite plentiful, close to $92 billion, including about $10.6 billion held by the Federal Reserve. The US Treasury Department said on Thursday that it plans to issue $39 billion in 10-year Treasury bonds on October 7.

“There is a deep base of bears in the market, and it's not surprising that there are so many bears over a 10-year period.” Scott Skyrm (Scott Skyrm), executive vice president of Curvature Securities, said, “The pre-release (WI) announcement and this tender will allow more bears to enter this ticket. I expect the 10-year period to continue to fluctuate over the next two weeks.”

The increase in volatility in this securities comes at a time when US Treasury yields soared: the 10-year yield hit 5.28% on Thursday, the highest since 2002, and then declined somewhat. Behind the rise in yield is the Federal Reserve's insistence on cooling inflation that has far exceeded its target for many years, while the background is $100 a barrel of crude oil, the boom in artificial intelligence spending, and the US's record high debt burden of 40 trillion US dollars.

Traders paid premiums to borrow two-year and five-year US Treasury bonds last month, but as the month-end settlement period on September 30 passed, that pressure has subsided — according to Skirm, current demand is focused on old securities. For example, the five-year treasury bond that went on sale in August fell to minus 1% on Wednesday, then dropped to 0.75%.