Monday, May 15, 2017


i was thinking which for me is not always a good thing, but since writing about the possibility of very long date Treasuries a few weeks back everyone has been talking about them as well..

A rather detailed report from a couple of industry groups...two reports, actually...concluded that while there might be interest in dates up to, say, 50 years there would be very little interest in anything much longer as there is really very little in the way of corresponding liabilities.  Which is what started me thinking.  How long has it been since I heard anyone in this business actually speak in terms of matching maturities?  A hell of a long time I concluded.

It was all the rage of course in the time when great reptiles roamed the earth or at least it seemed that way.  Then Mexico does a 100 year sovereign last year and then I remember thinking "whose got the liabilities to match this," and forgot about it.  What's the difference?  Well, might it be that matching doesn't really mean that much when the yield is north of 6% but it becomes real important when the yield is south of 4% which is where the indicative yield was placed by the industry groups?  What they were really saying was that the Treasury wouldn't accept more than that yield which is probably true.  Could it be sold?  Probably.  A bunch of it as well but then we start asking, what's a bunch?  When you're looking at $20 Trillion of outstanding debt....well, you get the picture.  But to fund infrastructure?  A bunch.

The limitation seems to be firstly's too good and secondly, how the hell do you trade the thing with the latter in my mind being more important.  What the industry experts are really saying is how do we make money not whether is makes sense.  And so the reptiles have died and we are at the point where what really counts is who walks away with a pocketful not whether the underlying transaction makes financial sense or not.  At least that's what I was thinking. Maybe  I'm reading too much into this.  As I said it's not always a good thing when I start thinking.

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