John Pitera's Market Laboratory Message Board

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Strategies & Market Trends : John Pitera's Market Laboratory

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To: Jon Koplik who wrote (6209)	5/29/2002 2:10:34 PM
From: John Pitera	of 33421

Leave it to those futures traders to make it simple -g- The TBILL is priced the same way. if the June TBILL is trading at 98.00 then it's pricing 90 day physical TBills to yield 2.00%. 100.00 - 98.00 = 2.00% if the TBILL future rises to 98.20. then the June TBill would be pricing an effective yield of 1.80% 100.00 - 98.20 = 1.80%. the Fed Funds Futures contract is also priced this way. The TBOND and TNOTE Futures throw in the additional consideration of coupon yield. Right now the CBOT has their benchmark set to a 6.00% coupon yield when it prices it's Notes and T Bond Futures. So since the Government is issuing Notes and bonds with a yield below 6.00%. The CBOT sees those physical debt instruments as selling at a premium to The CBOT benchmark 6.00% coupon yield rate. the CBOT actually changed it's benchmark from an 8% coupon benchmark to a 6% benchmark back in 2000, I believe. That's why if you look at a weekly TBond or TNote Future you see a huge downward Gap in price a couple of years ago. The bond market did not actually have a small crash back in Dec of 1999 as this chart seems to indicate futures.tradingcharts.com it was simply that when the contracts rolled over the new contract had a 6.00% coupon yield instead of an 8.00% coupon yield and the now gives the false impression that the bonds plunged from a 112 handle down to a 93 handle in a one month plunge. False.... it's not the case. *So you folks who just pull up a chart and think you can analyze it BE CAREFUL*... the chart fibs sometimes, or more precisely, it does not display all of the significant financial return info. When I was over talking with MB this past month. I was very happy to learn he was very familiar with Y (Alleghany) He knew how they had paid some giant $50 dividends as special events and also spun off assets to the share holders such as Chicago Title and Trust (CTZ) 3 years ago. So when you look at 10 or 30 year chart, you have no idea what so ever as to how much money you really would have made by owning it. ( It has vastly outperformed the Benchmarkets over the past 15-30 years.) (Don't look for CTZ now either, they were acquired by another company within 18 months of going public) JP

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