Bloomberg News

Dealer Holdings May Crimp Gain in Longer Treasuries, BNP Says

October 17, 2011

Oct. 17 (Bloomberg) -- Treasuries due in six to 11 years, the so-called belly of the yield curve, may outperform in a rally as primary dealers already own record amounts of longer- maturity bonds, according to BNP Paribas SA.

“There are already a lot of longs in the long end,” Bulent Baygun, head of interest-rate strategy in New York at BNP, wrote in an e-mailed response to questions today. “There are few marginal buyers left to buy in that sector in a rally. In contrast, if the positions are more balanced in the belly, then there is capacity by dealers to buy there.” A long position is a bet an asset will gain.

Primary dealers, companies authorized to trade with the Federal Reserve, held $14.3 billion of Treasuries maturing in more than 11 years on Oct. 5, according to data from the New York Federal Reserve Bank. That’s the most since May 20, 2009, and compares with a record $16.4 billion on May 13, 2009.

Holdings of debt due between six and 11 years were $879 million, compared with negative $1.2 billion the previous week and $5.1 billion in the week ended Sept. 21. A negative number indicates a bet against the securities.

The difference in yield, or spread, between 10-year and 30- year debt was 98 basis points at 11:12 a.m. in New York, compared with this year’s high of 150 basis points on Aug. 12.

--Editors: Nicholas Reynolds, Mark McCord

To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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