Help Wanted: Primary Dealers Hiring

by StockJockey

Thursday, February 12, 2009 - 2:35 pm

Need a job? Maybe you can shoot a resume in to a number of firms being considered to help peddle the massive amount of paper we will issue to help finance the spending spree we are on:

The Federal Reserve Bank of New York is in talks with at least four firms to expand the network of dealers that underwrite government-bond auctions as the U.S. prepares to sell more than $2 trillion in debt this year.

MF Global Ltd. and Nomura Securities International Inc. are in discussions to join the 16 so-called primary dealers that trade directly with the central bank and are required to bid at auctions, officials at the companies said.....Treasury Department and Fed officials want to ensure there are enough firms bidding at auctions to keep borrowing costs low after the total number of dealers dropped last year to the lowest amount since the network was formalized in 1960. Bloomberg

Hopefully we don't lose additional primary dealers. But the Fed can always choose ING Direct (just kidding) to peddle their paper directly to the Chinese citizens; the club is well represented by foreign firms, and more are sure to come.

Perhaps the Chinese are investing in the wrong instrument, however. The ProShares UltraShort 20+ Treasury ETF (TBT-NYSE) seems to be the belle of the ball. Going long is a bet that interest rates will shoot higher, and trading activity in the ETF is exploding:

The TBT shares outstanding are an excellent proxy for how popular this trade has become. One of the conditions for a bubble is parabolic increases in demand. The outstanding shares in this ETF have gone from about 7 million shares on Oct. 31 to nearly 63 million. The Street.com

With many Wall Street firms permitting employees to trade ETF’s (without the more stringent rules compliance officers put on individual stocks) you can bet this ETF will remain a hot potato as underutilized brokers flip it around and stare at the clock.

But hopefully bored employees will at least spend some time trying to round up buyers for the Government paper. If not Mr. Graff at TheStreet.com might have to reconsider his posture - maybe the herd will get this trade right after all.

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Fed in Talks to Add Primary Dealers as Sales Surge
Bloomberg
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