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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Chip McVickar who wrote (1462)	4/5/1999 7:22:00 PM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 3536

Chip, I wished I had my toes curled up in the sand. With most of Europe closed for Easter I took the day for paperwork, April 15 approaches. You are correct, in and of itself a reduction in supply is probably not enough to reduce interest rates. There are many factors involved and the overall state of the economy has more influence. But it is a contributing factor. Where the relative shortage of supply does have an impact, imo, is in credit spreads. There are a lot of funds that are required to own treasuries and cannot invest in corporate paper. As treasury supply decreases relative to other fixed income supply the treasuries rise in price relative to other fixed income. This widens the yield spread. A lot of press was given to the notion that credit spreads widened out last year because of the emerging markets crisis. Certainly the emerging market crisis and the collapse of Long Term Capital drove the spreads to the extremes we saw in the fall. But if you look at a chart of the spread you will see the credit spreads had been very gradually widening for a long period before those problems arose. It has been my belief the widening of the spread started because of the decline in treasury supply. And yes I was positioned for that widening in advance ;) Henry