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Dealer Positioning Primary Dealers have stopped growing their long fixed income inventories. Coupon holdings have flatlined; recent accumulation has shifted entirely to T-bills. Dealers are no longer absorbing new supply — they are xxxxxxx xxxxx xx.
The Hedge Dealers have added 363,000 contracts to their 10-year Treasury futures short position since October. Net securities borrowing spiked to new extremes in early April. These are not bets — they are preparations for a supply wave the dealers know is coming and do not want to own outright.
The Breathing Room Seasonal Treasury T-bill paydowns are currently injecting cash into dealer accounts, relieving pressure through late May or June. This window of stability is temporary and its end date is visible, either xxxx xxxx, or xxxxxx.
The Leverage Problem The repo-to-long-inventory ratio hit an all-time high of 80% before pulling back to 70%. Prior to 2025, this ratio had never exceeded 60%. The Fed’s T-bill QE and the current seasonal T-bill paydowns are masking the fragility, not resolving it.
The Cliff By xxxx at the latest, heavy Treasury net issuance resumes. The accumulated evidence — record leverage, record futures shorts, and record securities borrowing all points to a bond market that cannot absorb the coming supply without xxxxxxx. The Fed will be forced to xxxxxxxx xxxxx xxxxxxx regardless of who chairs it.
The Bottom Line The patina of stability is real but expiring. Dealers, the Fed, and seasonal mechanics have held the line through mid-year. xxxx xxxxxx xxxxxx xxxx 2026 is where the bill comes due.
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