US Treasury borrowing costs surge as investors pile into short positions

Something unusual is happening in the repo market, and bond traders are taking notice. Short-term borrowing costs for US Treasuries have jumped sharply, driven by a wave of investors using newly issued two- and five-year notes to build short positions against the market. The mechanics are straightforward: when a new Treasury note hits the market and becomes the instrument of choice for short sellers, demand to borrow that specific security spikes, pushing repo rates higher. Think of it like every driver in a city suddenly needing to rent the same make and model of car. The rental price goes vertical. Yields climb, short bets multiply The two-year Treasury yield climbed 7 basis points on September 18, settling at 4.74%, its highest level since mid-2024. Meanwhile, 10-year yields touched levels not seen since 2007. The investor positioning data tells an even starker story. A JPMorgan client survey for the week ending September 14 showed short positions in Treasuries surged 10 percentage points in a single week, reaching 19% of surveyed clients. That is the largest one-week increase in short positioning since JPMorgan began tracking the data in 2019. Net long positioning simultaneousl...