The US Treasury as a result of the government’s bloated response to the Great “Recession” has been forced in notes and bonds to reopen their auctions each and every month. Before then, reopenings were less frequent. They weren’t infrequent, but the Treasury wasn’t just auctioning 10s every month.

In 2007, for example, the Department conducted four quarterly auctions and one reopening for each. On October 31, 2007, it announced its regular intention to sell $13 billion in 10-year notes on November 15. A little over a month later, on December 17, it was augmented by another $8 billion in 9-year, 11-month paper with the same CUSIP (912828 HH 6), therefore technically the same note.

As is common now, there is a note sale on every calendar. The 10-years were auctioned on May 15, 2017 (912820 7D 3) and then reopened twice, once on June 12, and then again on July 12. All that paper floated is on-the-run.

The Treasury conducted the next regular auction for 10s (912820 3H 8) on August 9, selling $23 billion in notes. The first reopening was announced today at $20 billion of the same (now 9-year, 11-month maturity). This pattern of supply is no different than at auctions previous; the May sale was $23 billion in new notes, followed by $20 billion reopenings each in June and July.

And yet, the repo market for the 10s has gone insane today. GC rates for UST 10s collateral has dropped through the repo penalty floor (200 bps minus RRP). It indicates a severe shortage of 10s for collateral, which for the mainstream devolves into dreams about the Treasury market finally getting on board with interest rates have nowhere to go but up (a huge increase, supposedly, in short Treasury positions).

Without a supply issue to factor, the reopenings being perfectly consistent, there doesn’t appear any other explanation (as always) than the more benign.

Interestingly, however, the GC rate for the 10s did not just go down today on the auction announcement. The first real negative was on Monday, September 5. What was notable about UST trading on Monday was the very security we have been watching in repo all year – the 4-week bill.