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Non-Tech : Derivatives: Darth Vader's Revenge -- Ignore unavailable to you. Want to Upgrade?

To: accountclosed who wrote (897)	4/7/1999 2:04:00 PM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 2794

story paper is what it sounds like, something with a story attached that needs to be explained. A straight bond has a coupon and thats it, very straight forward. An index bond has a story that needs to be explained, you have to understand the index and how it will be compounded into the principal and a separate coupon yadda yadda yadda. The more complicated the story the more you narrow the audience. If inflation were at 10%+ there would certainly be more demand for hedging product. But that demand would most likely translate into specific item hedges i.e. hedges for oil, lumber etc. Accounting rules will require that to get hedge status the hedge will need to be for a specific risk. A hedge against a generalized consumer price index probably would not receive hedge accounting status. What this would create demand for is bonds with a link to specific items such as oil and lumber. The Treasury's indexed bonds would see more investor demand but not as much increased derivative use as you think. FWIW I have looked at the Treasury's bonds several times to create an inflation linked derivative. Doable but too cumbersome.