[gniv]

> Because US auctions can't fail - primary dealers need to act as a back stop - you've had firms like JPM and BofA taking on huge amounts of treasuries. This has really clogged the o/n repo market and is beginning to distort bank balance sheets.

I haven't heard about this. Any public reading material?

[neplus]

Sure, it's slightly complicated. Some may quibble on my somewhat explicit wording, but under the primary dealer system the Treasury can unequivocally ensure that auctions clear lest designations be stripped. It's hard to articulate how much an auction failure would disturb money markets. Therefore, clearing bond auctions is the highest possible priority of the Treasury and FRBNY and you saw JPM in Dec 18 taking it on the chin to make auctions clear (as there was surprise about the utter lack of foreign interest).

"The FRBNY also expects primary dealers to demonstrate their continued commitment to the market for Treasury securities by bidding meaningfully in all Treasury auctions. If a dealer fails to bid meaningfully in an auction, the FRBNY typically contacts that dealer to remind it of its so-called "underwriting" responsibilities."[1]

[1] https://www.treasury.gov/resource-center/fin-mkts/Documents/...

[gniv]

(Replying to myself)

I found this graphic: https://fingfx.thomsonreuters.com/gfx/mkt/12/4001/3971/U.S.%...

linked from this article: https://wkzo.com/news/articles/2019/jul/30/us-seen-ramping-u...

Funny thing is, given the recent trend in treasury yields, these banks are making good money on their holdings.

[neplus]

You'll notice in this graphic the sharp jump in holdings that corresponds to around October. This is when - for foreign buyers - the yield curve really inverted for practical purposes, leading to primary dealers filling up their books, which I detailed a bit in my initial post.