The treasury market has always been highly liquid. Dealers are able to sell treasuries without owning them, borrowing them in overnight through the repo markets in order to meet the T+1 delivery. The supply of treasuries into the repo market has, in calmer markets, been so bountiful that selling treasuries without owning them was not considered by most traders to be a concern. After Lehman collapsed, however, several things happened to dry up supply to the repo market, explains Rob Toomey, formerly with the BMA which is now part of Sifma (The Securities Industry and Financial Markets Association).
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