The Marriner S. Eccles Federal Reserve Board Building is seen
The Marriner S. Eccles Federal Reserve Board Building is seen under construction on August 13, 2026 in Washington, DC. The building has been going through a major renovation. The work is expected to be completed in late 2027.

The overnight repo rate for borrowing five-year US Treasuries briefly fell to minus 0.85% on Friday (September 18), from 0.29% moments earlier. The yield on two-year Treasuries rose to 4.743% on the same day, its highest level since July 2024.

Data from brokerage ICAP showed the overnight repo rate for two-year Treasuries was about 0.79% on Friday, down from around 0.95% earlier in the session. The repo rate for general collateral Treasuries was about 3.88%.

A lower repo rate indicates stronger demand to borrow a particular bond. In a repo transaction, traders exchange cash for bonds posted as collateral. Those seeking to borrow a specific bond to short it may accept an extremely low or even negative cash return, effectively paying to borrow the security. The market describes such bonds as being “special”.

The move came after the US Federal Reserve raised interest rates by 0.25 percentage points on Wednesday (September 16), lifting its federal funds target range to 3.75% to 4%, the first increase since July 2023. The 10-year Treasury yield climbed back to 5.004% on Friday, after touching 5.04% during the week, its highest level since 2007.

John Canavan, an analyst at Oxford Economics, said in a research note that two- and five-year Treasuries were likely to see unusual trading before the weekend as traders positioned for next week’s auctions of two-, five- and seven-year government debt.

As yields continue to rise, traders have become more inclined to short Treasuries, requiring them to borrow the securities in the repo market first. New bonds enter the when-issued market before an auction, when the physical securities do not yet exist, pushing up the cost of borrowing them. Data from CME Group showed that risk positions in short- and medium-term Treasury futures rose during the sell-off after the Fed meeting, consistent with signs of new short positions. Citing Phoenix Finance, the report said a JPMorgan survey of Treasury clients found that the proportion holding short positions rose 10 percentage points in the week ended September 14 to 19%.

Settlement data from the Depository Trust & Clearing Corporation (DTCC) showed that failed settlements of US Treasuries rose to US$67.6 billion on September 17, from US$36.7 billion on the previous trading day and above the five-day average of US$54.7 billion. A settlement fail occurs when one party to a trade is unable to deliver the bonds on time.

As for the Fed’s holdings, the central bank stopped reducing its balance sheet in 2025 and has continued reinvesting maturing bonds in auctions. It currently holds about 11.4% of the latest two-year and five-year issues respectively. In the Fed’s securities-lending operation on Thursday, dealers’ bids for both two- and five-year Treasuries were fully accepted.

The five-year repo rate’s fall to minus 0.85%, the full acceptance of bids in the Fed’s lending operation and settlement fails above the five-day average are consistent with the view that traders were positioning for short sales ahead of the auctions. However, the data alone cannot rule out broader liquidity pressures. With Treasury yields at multi-year highs, the demand at next week’s two-, five- and seven-year auctions, whether the five-year repo rate remains negative and whether settlement fails continue to rise will become clearer in the days ahead.