The U.S. government securities market, once the world’s most influential, is losing its “masters of the universe” cachet with big banks, according to Bloomberg News, which reports that as price swings in the treasuries market have declined, so have institutional investors.
“Low volatility makes it very hard to generate any income,” explains E. Craig Coats, who was Salomon Brothers’ co-head of fixed income in the 1980s, except by “doing massive amounts of volume.”
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This month, CIBC World Markets Corp. gave up its primary dealer franchise, bringing the number of firms that can buy and sell government securities directly from the Federal Reserve Bank of New York to 21, the lowest since 1971. The high was 46, in 1988.
Merrill Lynch’s MOVE Index of expectations for volatility in the Treasury market, launched in 1988, marked a record low of 54.9 points on Feb. 5 and finished last week at 60.7.
