MARKETS advertisement E-MAIL SIGN-UP Find out the latest market movements and trends in our e-mail alerts. Check the boxes below to subscribe. Trading Shots The Morning Brief The Afternoon Report The Evening Wrap Heard on the Street To view all or change any of your e-mail settings, click to the E-Mail Setup Center Treasury Department Scrutinizes Trading of a Futures Contract By DEBORAH LAGOMARSINO DOW JONES NEWSWIRES August 9, 2005 The U.S. Treasury's new undersecretary for domestic finance, Randal Quarles, said the department is looking into whether there may have been a short squeeze in the now-expired 10-year June futures contract. There is market speculation about a short squeeze in the contract, based on the 10-year note Treasury sold in February 2002 that matures in February 2012, that spurred a surge in unsettled transactions, or fails, in the repo market. A repo transaction fails when a firm lends out securities overnight and then doesn't get them back on schedule. In manipulative short squeezes, parties holding large amount of a given security withhold securities from the market and force short-sellers to pay exorbitant amounts to cover their positions. "As to the particular cause of what happened in June, I'm still delving into that," said Mr. Quarles, who was sworn into his new post last week after three years as assistant Treasury secretary for international affairs. He wouldn't say if Treasury has referred the matter to securities regulators. Spokesmen for the Securities and Exchange Commission and the Commodity Futures Trading Commission declined to comment on whether they are looking into the matter. A spokeswoman for the Chicago Board of Trade also declined to comment. The New York Times on Sunday reported that the largest holder of the 10-year Treasury in question, and therefore the one that would benefit the most from a short squeeze, is Pacific Investment Management Company LLC, or Pimco, a money-management firm specializing in fixed-income investments and run by William H. Gross. James M. Keller, a managing director at Pimco and director of its government/derivatives desk, told the newspaper that the company as a policy doesn't comment on its trades. Treasury recently proposed creating a special lending facility to address what it has said may be persistent liquidity problems in the repo market, citing several instances of problems in recent years. Prior to recent troubles, in 2003 the May 10-year note maturing in 2013 didn't trade in the usual fashion for about six months, causing major headaches in the repo market, where dealers finance market positions. "Because of a number of instances over the course of the past couple of years, that's one of the reasons at the last meeting of the Treasury Borrowing Advisory Committee we did float this idea of a facility that would help ensure liquidity in the event of shortages," Mr. Quarles said.
Something was definitely up in June/July. Gross was out on the wires talking about how 10 yrs were going to 3%. The bond market was trying its best to tank, but prices just kept jumping up for no apparent reason. Now, the squeeze is over and 10 year yields are up about 40-45 bp from their lows - looking more like we'll see 5% before we ever see anywhere near the lows Gross was talking about.
Who really cares what Bill Gross has to say ? ... unless you trade the interest rate complex and even then, there is not a lot you can do about PIMCO influencing particular markets ... when the beach moves you just jump on board or get out of the way ....
Are they really going to react to his "speech" or are they going to watch to see what actually happens ? .... His statements are just so much marketing noise .....