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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: Bonnie Bear who wrote (36887)	1/28/1999 3:37:00 PM
From: James F. Hopkins	Read Replies (1) \| Respond to of 94695

Bonnie; They don't make it very easy to find, the gist of it is it's welfare for the insiders. It's odd how when the depression hit who lined up at the door step for welfare first ( and got it ) was all your big bankers. Jim

To: Bonnie Bear who wrote (36887)	2/2/1999 1:24:00 AM
From: John Pitera	Respond to of 94695

Bonnie I thought I would give this a shot even thought I am not sure I am on the right track <<<have you noticed that the feds have been buying back coupons but they always exclude certain issues by maturity date?>>>>>>>> The Primary Dealers that make markets and trade not just the futures but the actual treasury bond issues, as a rule like to trade the "key trading stock" or the issues that are the most liquid and are relatively widely held and are price sensitive.... ie if the price moves enough the dealers will sell those issues since they have a profit in them. In Last falls panic, --off the run--ie the issues that were less widely held and were trading at a bigger delta (discount) to the liquid "key trading stock" were helping to give the impression that many of the treasury debt issues were mispriced and that there was not a continuity to pricing and trading of US Debt securities. Their was not a reliable relationship to the maturity data and yield of the thin issues compared to the more liquid widely held treasury issues. If the Fed does not want to exacerbate this situation, when they buy govt' debt they want to exclude the issues that are very thin with not much volume outstanding or the issues that are held by insurance company, pension fund, and other holders who will hold until maturity. If the Fed did not exclude these issues this would help to create larger fluctuations and disparities among specific bond prices. If you look at the Wall Street Journal or another price summary of US Govt debt you will see that the most recently issued bond that is 30 years out sells at a yield discount other US Govt issues that are maybe 27 years until maturity. THis is because the Treasury dealers will pay a premium...more for the biggest most liquid bond issue... 30 yrs out that is the easiest to trade in and out of in size . This is the way it was when I was at Citicorp and Chase ...I think it explains why the Fed wants to buy some issues and not others. You have to remember that some US Long Bond issues end up with large percentages of the "float" of the issue in the account of Long-Term holders such as FNM and Ginnie Mae and in the big Insurance company portfolios that they will hold the debt issues until maturity unless there is such a big price disparitity (read arbitage opportunity) that they go in and disturb their bond portfolio since they can "unlock" so much extra money from there portfolio. To get into why they would go in and do this at a given yield disparity we would have to construct a portfolio of long bonds and then show the threshhold where there is a sufficient "unlockable" profit to sell long term holding and replace with similar maturity holdings that are selling at a discount. Best Regards, John