Updated from 12:56 p.m. EST
What can $250,000 get you, if you're an investment bank that specializes in selling bonds? Well, for one, you could invite freshly retired
chairman Alan Greenspan to a secret gathering of friends, have him mumble his usual vague assessments about the state of the economy, and spin what he says the next day to your advantage.
If you're a bond powerhouse, say
, that means making Greenspan sound hawkish, hinting that the economy is strong and that the Fed will raise rates for longer than expected, keeping inflation in check. Long-term bonds lose value as inflation rises.
Second-person accounts of Greenspan's appearance at a private event organized by Lehman Brothers in Manhattan on Tuesday night sent ripples through markets on Wednesday, as odds that the Fed will raise rates to 5% by May or June rose substantially.
"Greenspan reportedly was upbeat on the economy, negative on housing and seemed to warn of the risk of more Fed tightening than the market expects," wrote
contributor Marc Chandler.
But it's funny to note that most of the second-hand accounts hit trading desks on Wall Street mostly thanks to Lehman traders generously calling their counterparts at other firms. "We had the guys from Lehman calling us to give us an update as to what
Greenspan said," Anthony Karydakis, chief U.S. economist at J.P. Morgan Asset Management, told the
Yet according to
The Wall Street Journal
, one person who attended the Lehman event said Greenspan had refused to comment on interest rates in order not to compromise the authority of Ben Bernanke, his successor at the Fed.
As the rumors were circulating Wednesday, bond dealers, such as Lehman, were preparing to sell $13 billion worth of 10-year Treasuries on Wednesday. The auction went well, with every $1 sold met by $2.32 worth of bids. After the auction, however, the price of the 10-year Treasury fell again and its yield, which moves inversely to price, rose. In recent trading, the benchmark note was up 4/32, its yield at 4.53%.
Bond yields have been rising overall since the beginning of the year, mostly in anticipation of an unusual amount of debt to be issued by the government this quarter, according to Michael Gregory, a fixed-income strategist at BMO Nesbitt Burns.
Indeed, bond dealers have cause for concern about how to resell $188 billion worth of debt being issued by the Treasury. This record amount, which is much larger than usual quarterly refunding amounts, is to be used mostly by the government for reconstruction efforts in the hurricane-hit southeastern region of the country.
The final leg was Thursday afternoon's auction of $14 billion worth of 30-year bonds, marking the first new issue of the long bond since 2001. The long bond is being reissued amid strong demand for safe long-term assets by the likes of pension funds and insurance companies.
The auction yield was 4.53%, considerably below the 4.58% that was expected, a sign of aggressive bidding. Indirect bidders, a proxy for foreign investors, tallied 65.4% of all awarded bids, considerably above expectations for a figure closer to 25%.
"The sizeable figure suggests that end users were active buyers in the auction; the paper is in good hands, and the Street is not burdened," commented Miller Tabak strategist and
contributor Tony Crescenzi.
In recent trading, the pre-existing 30-year bond was up 15/32 to yield 4.64%.
So what did Greenspan really say?
Nothing really new. After fears of a U.S. economic slowdown were felt in markets early this year -- fears that may or may not prove correct -- the market is again beginning to expect stronger growth at least in the first quarter, says BMO's Gregory. And expectations for further rate hikes were already going up before Greenspan's alleged comments.
Meanwhile, according to an account of another speech he made just before his appearance at Lehman, Greenspan made less hawkish-sounding comments than the ones he was reported as saying at Lehman.
Appearing as a holographic image in a conference in Tokyo, he said gold prices have been boosted not by inflation or the strength of commodities, but by the threat of terrorism, according to the
Times of London
He did say, however, that energy prices will likely stay high, due to a lack of investment in refining capacity by the oil industry.
For the Tokyo appearance, Greenspan was paid $120,000, according to the
. According to the
New York Post
, he received $250,000 to speak at the Lehman gathering, but nobody said whether the extra dollars gave Lehman traders the right to spin his words.
Both oil and gold prices were rebounding Thursday, following several days of weakness. Crude oil was recently up 31 cents to $62.86 amid concerns that tensions over Iran's nuclear ambitions aren't going away. And gold was surging $14.30 to $568.10 per ounce, following a selloff on Tuesday and Wednesday. Lower prices attracted jewelry buyers and a terror alert in the U.S. Congress Wednesday night also added to the bidding, according to NSF Futures.
Stocks, meanwhile, were rising after strong guidance from electronics retailer
Dow Jones Industrial Average
was recently up 0.5%, to 10,914.89. The
was rising 0.3% to 1269.11 and the
was up 0.4% to 2274.95.
Research In Motion
was higher after the BlackBerry maker said it found a way to continue providing wireless email service should its ongoing patent dispute with
In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback;
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