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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: russwinter who wrote (44601)11/1/2005 4:02:43 PM
From: J_Locke  Read Replies (1) of 110194
 
Has to do with the derivatives markets becoming too large for the primary markets. Let's say a particular t-bill has a "float" of 1 billion but 1.2 billion worth of that date have been sold short for use in repo agreements. On settlement date there will be a lot of failures when the parties have to deliver a security which can't be had.

The Treasury wants to be able to synthetically create specific dated securities to meet that excess 200 million of demand to keep failures from happening. The alternative is a "force majeure" situation that allows for cash settlement.
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