Treasuries: A Very Bearish Development
27/06/2009 § Leave a comment
Dresdner Kleinwort Securities has withdrawn from the Federal Reserve’s primary U.S. government security dealers, the U.S. central bank said Friday.
The change is net neutral in terms of numbers as a new dealer just came online, but in general this is a major net negative for the Treasury market.
Why? Because being a primary dealer is, in general a license to print money. You get to field customer orders for Treasuries and make your spread, and you have a privileged trading position with The Fed.
There’s only one fly in the ointment, and that is that the position comes with a requirement that you bid. This is distinct from most other nations where no such system exists, and essentially guarantees that there can never be a "failed" Treasury auction.
Read the last sentence again. Bankster bastards! Abolish the FED!