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What’s behind the March Spike in Treasury Fails?

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Abstract

U.S. Treasury security settlement fails—whereby market participants are unable to make delivery of securities to complete transactions—spiked in March 2016 to their highest level since the financial crisis. As noted in this post, fails delay the settlement of transactions and can therefore lead to illiquidity, create operational risk, and increase counterparty credit risk. Fails in the Treasury market attract particular attention because of the market’s key role for global investors as a pricing benchmark, hedging instrument, and reserve asset. So what drove the March spike? In this post, we show that much of it reflected sequential fails of benchmark ten-year notes and thirty-year bonds, but that fails in seasoned issues—which have been trending upward for several years—were also elevated.

Suggested Citation

  • Michael J. Fleming & Frank M. Keane, 2016. "What’s behind the March Spike in Treasury Fails?," Liberty Street Economics 20160418, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:87121
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    Cited by:

    1. Stefania D’Amico & N Aaron Pancost, 2022. "Special Repo Rates and the Cross-Section of Bond Prices: The Role of the Special Collateral Risk Premium [Pr icing the term structure with linear regressions]," Review of Finance, European Finance Association, vol. 26(1), pages 117-162.

    More about this item

    Keywords

    Treasury; fails; Settlement;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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