In the US Treasuries market banks are usually willing to lend money to investors with zero “haircut”, meaning they will lend the full purchase price, because of the safety of the US government and typically tiny daily price moves. But last month banks began to demand borrowers put up a margin, albeit a small one, in an indication of their desperation to reduce lending, the same problem that took down Bear.
The scale of borrowing on Treasuries is eye-popping: EMF, for example, started the year with leverage of 37 times its then assets of $294m, almost $11bn, not unusual for a Treasuries book. By the end of March it had reduced this to 25 times assets, according to a letter to investors.
The de-leverage selling of assets continues to unsettle markets.