Why? It has to do with liquidity in short issues ( referred to as coups). As twist progresses, the Fed will no longer own any issues 2016 and shorter. The Fed is the backstop in repo when issues get tight as they auction off issues they own to dealers. Now, if an issue gets tight they will not have any to auction. In addition to that, there are certain counterparties that don’t repo out their holdings (and they buy a number of coups). So going forward, dealers will be less likely to offer liquidity in issues that they are worried about shorting. This will also include bills. So, do not be surprised to see more negative bill rates in bill-land over the quarter ends.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.