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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Jack Clarke who wrote (236)	12/29/1997 1:04:00 PM
From: RealMuLan	Respond to of 9980

Jack: As a matter of fact, I did read from SI, I forgot from which thread, some kind of deal has been made between NY Federal Reserve and Japanese government, so that they won't sell US bond. Best luck.

To: Jack Clarke who wrote (236)	12/29/1997 2:12:00 PM
From: Zeev Hed	Read Replies (3) \| Respond to of 9980

Jack: I do not think that such a deal is really necessary. The US is currently in a position where it issues less new (net) bonds than the interests it pays out (by about I would say $120 Billion last year). Since most of the interest paid out on the debt is reinvested in bonds, there is actually a shortage of bonds, and thus selling of japanese owned bond into that kind of environment provides stability in the markets. The US is certainly not interested in seeing an inverted yield curve which would have happened if the Japanese were not net sellers. It is what is happening at the margins that count. Zeev

To: Jack Clarke who wrote (236)	12/29/1997 7:54:00 PM
From: Rational	Respond to of 9980

Jack: << Don't you think our leaders, (Rubin) have made an "under the table" deal with Japan, so that they will not dump our bonds? Perhaps some sort of trade or currency consession? Many thanks.>> Yes, NY Fed has such a deal to buy the US Treasury directly from the BOJ when the latter needs US$. But, the effect will be the same if the BOJ is going to use the US$ to buy yen. Some new thoughts: The financial institutions and other investors in Japan will sell US Treasury without any question IF the yet-to-be issued preferred stock in Japanese banks will pay greater than the US Treas rates. I think this is a shrewd Japanese tactic that no other country has tried: to force investors become bank preferred stockholders at a guaranteed rate of interest (pref div), and to avoid asking them to own Japanese bank stock at a risk or debt at a lower rate of interest. I think the Japanese will succeed once this plan is well-known -- it depends on the preferred dividend rate. It is a magical solution to a great problem, IMO. This may be a turning point for Japan. If the Japanese government announces a preferred dividend rate that is higher than the US Treasury yield, that will be the beginning of a large drop in the US equity and bond prices. Sankar