FTD Alert! Daily Total US Treasury Fails creep up during the month of May (averaging $35.77 billion per day), while Agency fails hit a 52 week High at $4.05 billion.
Source: https://www.dtcc.com/charts/daily-total-us-treasury-trade-fails
What do these charts show?
They show the value of U.S. Treasury securities that were not delivered to fulfill a trade contract. “Failures-to-deliver” occur when either sellers fail to deliver or buyers fail to receive securities in time to settle a trade. Settlement of a trade is the point at which the seller is required to deliver the securities agreed upon in the trade and the buyer has to deliver the funds to pay for the securities.
Do the charts show the value of failed U.S. Treasury securities deliveries for more than just the previous day?
Yes. You can chart rates for the previous day, week, month or the previous 12 months.
What's the data source?
DTCC's Fixed Income Clearing Corporation, which serves as the clearing house for markets that trade in U.S. government securities.
Are there consequences for a failure to deliver?
Yes. Not only does the original trade fail, but the party that bought the securities may have already pledged them in a subsequent trade, and now that trade too will involve a failure-to-deliver, thus creating a cascading effect.
Are there penalties for a fail?
To encourage prompt delivery of securities, Fixed Income Clearing Corporation (FICC) follows the recommendation of the Treasury Market Practices Group, which is made up of executives from the securities industry. Based on the group’s recommendation, FICC now collects interest at an annual rate of 3% on the settlement value of the trade (minus the Target Fed funds rate in effect the day before the settlement day).
Can you give an example?
Let’s assume that a firm fails on a $50 million position on which it is owed $50.1 million. If the Target Fed funds rate the previous day was 1%, then the fails charge will be 2% per year and it will be applied to the $50.1 million total value of the trade. This will result in a charge for the firm of $2,783.33 for that day.
