Treasury dealers offload bonds as regulatory deadline approaches

One explanation for the disconnect is that dealers are taking steps to trim holdings before the expiry of a key regulatory exemption on March 31

The Treasury market selloff last week came amid signs investors are deleveraging. In a curious twist though, instead of dealer inventories rising as a consequence, they unexpectedly collapsed.

Treasury holdings at primary dealers dropped by a record $64.7 billion to $185.8 billion in the week through March 3, leaving them at the lowest since 2018, according to data from the Federal Reserve released on Thursday.

Typically, when investors offload Treasuries, dealer inventories balloon, as they did in March last year amid the early stages of the pandemic. The breakdown of the most recent data shows the bulk of the decline came from