For reasons relatively easy to figure out, the massive flood of repo fails from a few weeks back was largely ignored outside of a few minor references. Not much has been made of it at all, and why would there be since it is really hard to shove the imbalance into “the narrative.” That isn’t to say that there haven’t been any attempts to provide the usual benign banality that explains why it just wasn’t worth noting. To the contrary, the absurdity of what was offered is itself noteworthy.

A little over a week ago Bloomberg reporters Alexandra Scaggs and Liz McCormick reported on some bank chatter over the repo discrepancy and how it might have related to what I classify as UST “hoarding” (as collateral). To be clear, I take no issue with these reporters who are simply publishing what they have been told and assured by the “right” kind of experts. This story goes:

As the world’s biggest bond dealers — including banks such as Bank of America Corp. (BAC), Goldman Sachs Group Inc. (GS) and JPMorgan (JPM) — struggled to get rid of the burgeoning pile of debt, the premium for the newest, easiest-to-trade Treasuries soared to the highest since 2011. The firms’ efforts to hedge all the Treasuries collecting on their balance sheets also roiled the futures market and a crucial corner of the financial system where traders lend and borrow securities overnight.

The existence of such huge inventories in the first place is apparently traced to foreign central banks “selling UST’s”, and thus these were dealers acting the good money dealing agents and providing liquidity in the greatest hour of need. Having absorbed all those “selling UST’s”, that created the immediate need to hedge against the unexpected inventory, spiking the premium in especially OTR (on-the-run) securities and thus leading to the dramatic collateral shortage that spilled into a 2008-style collateral run. To write than I am unconvinced is biblically understating my contempt for this attempt.