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To: Henry Volquardsen who wrote (643)	9/10/1998 9:45:00 PM
From: Bill Grant	Read Replies (1) \| Respond to of 3536

It could be Bradley. He's got rough edges in public, but is smart and honest in the public's mind. He's been hanging out there looking for his chance, and this may be it. PS: Between Bradley and Nunn, I would support Nunn. Mitchell, no way!

To: Henry Volquardsen who wrote (643)	9/11/1998 7:09:00 AM
From: Cage Rattler	Read Replies (2) \| Respond to of 3536

Henry: I agree with the acceptability of Lieberman -- particularly after his condemnation of Clinton last week. He is a far better choice for the country than George Mitchell. George's transformation from statesman to a political tool was sad to behold. What baggage does Senator Moybihan carry with him? I haven't followed his personal life only his public exposure since the UN. My bias is is that of a conservative Democrat and I find myself at odds with Senator Moynihan from time to time; nevertheless, I can always respect his opinion. Of course, he might have digestive problems with Gore. Now from the perspective of a Maine resident, Mario seems more "stereotypical" of a New Yorker. I am dumbfounded by the effectiveness of the sophomoric propaganda techniques used in defence of Clinton's chronic, moral and ethical dishonesty. Good Lord, we can do better than Bill Clinton. Ciao, Ted

To: Henry Volquardsen who wrote (643)	9/11/1998 7:32:00 AM
From: Daniel Chisholm	Read Replies (1) \| Respond to of 3536

Henry, some Yen Carry Trade questions for you. I've been wondering for some time now about the details and actual workings of the carry trade. Interestingly enough, an article appeared earlier today on Yahoo! that did quite a good job of proceeding beyond the basics of "Borrow yen at low rate, convert to USD, invest at a higher rate in Tbills or Tbonds, convert (some of the) earnings back to yen, pay off the loan, realize the profit" The article is at: biz.yahoo.com Now I realize that it is not necessary for me as a small retail investor to be able to do the carry trade myself. As long as it is possible for some market players to do so, potential arbitrage opportunities will cause the economics of the carry trade to be reflected in the pricing of, say, cash yen vs. front vs. back month exchange-traded yen futures contracts. However, I'd like to understand as best I could just how the whys and wherefores of some market players work. Specifically, * who borrows yen, and from whom? * at what rate can this yen borrowing be done? * under what terms (time, collateral, leverage) is this done? * what dollar investments are made (Tbills, Fed funds, etc)? Some Japanese short term interest rates that I am aware of are: BOJ discount rate: 0.5% BOJ overnight call rate target: 0.25% or below Japanese prime rate : 1.0% Euroyen rate: 0.57% (re: Sep98 CME) Some US short term interest rates: Federal Reserve Discount rate: 4.5% (? - not positive on this) Fed Funds target rate: 5.5% 90 day US Tbill: 4.8% (? - from memory, no source handy) Eurodollar: 5.48% (Sep98 CME) Now I observe from today's (10 Sep 98) settlement prices for the CME Sep98 and Dec98 yen futures contract: 7441 Sep, 7536 Dec. As I understand it, this implies a "carry charge" of 7536/7441 = 1.01276 = 1.28% per 3 months, or 5.11% per year (simple compounding - close enough!). The "carry charge" implicit in the difference between these contracts implies that there is (or ought to be, otherwise someone could arb it away!) a difference of 5.11% between "appropriate" or "comparable" short term US and Japanese interest rates. Now this is approximately correct, however I wonder which of the short term rates are the ones that have a bearing on the underlying (potential) arbitrage operations that establish the pricing relationship between yen futures contract months. The above-mentioned Yahoo! article contains this interesting passage: But the BOJ lowered its target rate for overnight call money to around 0.25 percent from slightly below 0.5 percent [...snip....] That lowered fund-raising costs for overseas hedge funds that often borrow yen funds with Japanese government Treasury bills (TBs) as collateral. Key three-month TBs maturing in November 1998 were yielding 0.200 percent on Thursday, sharply down from Wednesday's close at 0.335 percent. By using TBs as collateral, institutions in Tokyo on Thursday could borrow one-week money from the central bank at rates as low as 0.05 percent, down from around 0.25 percent earlier in the week. OK, so some "institutions in Tokyo," with access to the overnight call money market borrow at 0.25% (from the BOJ? from other banks, ala US fed funds?), and secure this borrowing with Treasury bills yielding 0.2%, for a net borrowing cost of 0.05%. Question 1, wouldn't these collateral TBs have to be in the possession of or under the control of the lender (BOJ?), if they are serving as collateral for the loan? And since the yen loan proceeds are tied up in Japanese Tbills, can this be a USD carry trade? (Do you get to spend your loan proceeds twice?) OK, then this happens: [...] invest in higher yielding instruments via currency and interest-rate swaps. With whom? Who wants to swap dollars for yen with a Japanese institution (bank?)? Are Japanese Tbills, already pledged as collateral for the loan, available to use as backing for a derivatives contract? A sort of related question, why not avoid FX risk and simply borrow short and buy 10 year Japan Government bonds, which yield the princely sum of, what is it, about .78% now? Is the Japanese government and/or the BOJ attempting to get all their banks very long the USD, so that when/if the yen devalues, this will help bail out the banking system? - Daniel