Specials trading in the US Treasury repo market ground almost to a halt for a period in October and November in response to warnings from regulators over market manipulation in the $4.3 trillion market.
Signs of regulatory concern mounted over the months, with reports of a Securities and Exchange Commission (SEC) investigation into the activities of Treasury bond dealers at UBS, a Treasury official's speech to the Bond Market Association (BMA) in September, and finally a direct warning to the Treasury's 22 primary dealers in a short, sharp meeting with the Federal Reserve (FED) on 6 November, the first such warning in 15 years.
Taking to the sidelines
The resulting fears of increased regulation stifled aggressive repo trading in the period leading up to the US Treasury auctions of $19 billion in three-year notes on 8 November and $13 billion in ten-year notes the following day. The US Treasury auctions...
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