* Holdings in newest U.S. 10-year note in focus
* Overnight repo rates on 10-year notes turn negative
* Level of failed Treasuries trades surges this week
* Data suggest traders scramble to cover short bets
WASHINGTON, March 15 (Reuters) - The U.S. Treasury Department on Friday called on institutions holding a large amount of benchmark Treasury notes to provide information on their positions following a week in which there was unusual activity in market.
The Treasury called for “large position reports” from entities holding positions in 2 percent notes maturing in February 2023 of at least $2 billion at the close of business on March 11.
Traders said the Treasury was seeking this information on concerns over disruptions in the market for government securities after a huge jump in the number of trades that could not be completed, or fails, earlier this week.
Treasury officials said the market experienced about $80 billion in fails on Monday, which was a five-fold increase from the average over the last year, according to data from the Depository Trust and Clearing Corp.
“Entities with reportable positions in this note equal to or exceeding the $2 billion threshold must report these positions to the Federal Reserve Bank of New York,” according to a Treasury Department statement.
Reports are due before noon EDT (1600 GMT) on March 21, the Treasury said.
Analysts said the huge surge in failed Treasuries trades is what most concerns the Treasury Department, as Treasury yields are rate benchmarks and Treasury securities serve as collateral for many outstanding loans in financial markets.
“They want the market to function smoothly,” said George Goncalves, head of U.S. interest rate strategy at Nomura Securities International in New York.
“It does feel the market is trading short due to technical and/or fundamental reasons. There seems to be a short base that needs this 10-year paper,” he added.
The rate for lending out securities in the overnight repurchase, or repo, market, normally about 20 basis points, shot into negative territory on Monday due to a severe shortage of 10-year notes due February 2023. The reason for the shortage is unclear.
The shortage caused some disruption in the short-term funding market, according to traders. In the repo market, investors lend securities to others in exchange for cash for a short term - typically overnight - to fund trades or short-term operations.
It’s very unusual for a fairly new Treasury security to experience shortages and it seems to have persisted throughout the week despite the Treasury selling an additional $21 billion in that same security on Wednesday, according to traders.
With such a scarcity of this note issue some repo transactions using this particular 10-year note issue as collateral failed - that is, the Treasury securities were not delivered to those who wanted to hold them. In the repo market, when a party fails to deliver the security on an overnight loan, that party would then have to pay a penalty rate of 3 percent.
The latest positioning data from the Commodity Futures Trading Commission released on Friday supported the view that some speculators had bet on a further decline in bond prices this week but were forced to exit these short bets when bond prices rose. This meant they had to buy 10-year notes to close out these short positions.
The amount of bearish or short positions in 10-year Treasury futures from speculators exceeded long or bullish positions by 57,346 contracts on Tuesday, according to the CFTC’s latest Commitments of Traders data.
A week ago, there were 76,818 more longs in 10-year T-note futures than shorts.
This was first time since early August that there were more speculative short positions in the 10-year T-notes than long ones. This weekly net drop in speculative positions was the largest in almost 14 months.
This week, 10-year Treasuries futures traded as low as 130-1/32 before ending at 130-28/32, up 21/32 from last Friday.
The record-keeping done through the large position reporting program aims to closely monitor the Treasury securities market and to stave off manipulation.
The Treasury originally auctioned $24 billion of these notes, which have a 2 percent coupon, on Feb. 13, and held a second auction this week, selling $21 billion of notes with the same maturity.
This was the first time Treasury launched a large position report since Feb. 27, 2012.