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rmoore926
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On 6/4/2021 at 7:25 AM, dwg13013 said:

Always wondered.

I know for the little money crowd, bonds are a small payoff safer investment.

Other than rapid trading price shifts, how does big money make enough to keep investing huge amounts ?  Never really understood it.

 

I was fascinated by the small window of time, flash traders in stocks found Verizon accidently made a super fast phone line.

They found when a huge trade was made, in the time the trade was phoned from one side of Wall Street, via New Jersey, to across the street at the trading floor.

They could phone Chicago and make a play on the huge trade.

Made huge profit, for a little while.  LOL

There are many different players in the Treasury market, buy and hold institutional investors, i.e. pension plans, insurance companies, unions, central banks and the like. The major players in the market are the “Primary Dealers”, the largest banks in the world, Citibank, Goldman Sachs, JP Morgan and the like. There used to be 44 of them but through mergers over the last 30+ years they are down to 16 or so. These firms are authorized to transact business with the US. Treasury through the Federal Reserve Bank of NY. They are required to bid on all auctions held by the Fed when issuing new Treasury Bills, Notes and Bonds, they issue over 100 billion in new securities per week.

 It is all about scale for these players, when you have massive positions, minor price movements matter. On my desk which was the 5 year swap desk, the minimum trade was 10 million. Meaning you would buy or sell 10 of one issue and sell or buy the weighted amount of the 5 year benchmark treasury, or the current 5 year note. Customers only start to notice when the trade starts working up, meaning multiple buyers or sellers and the amount of the trade works into the hundreds of millions. Not an uncommon experience. 

 To put it in perspective, bonds are priced in increments of 1/32 and  1/32 per million is $312.50. Say you had a billion of an issue priced at par or 100. The value of said security goes up by a ‘plus” or half of 1/32. Your profit would be $156,250. Not bad for a day’s work while being subject to all sorts of market influencers throughout the day, Fed comments, economic releases, customer selling of the issues you own, other market traders going against you, etc… this is a simplistic explanation but I have worked with guys and watched them make or lose millions with equal grace. Otherwise you would hurl yourself out the nearest window. 

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18 hours ago, RT Fan said:

There are many different players in the Treasury market, buy and hold institutional investors, i.e. pension plans, insurance companies, unions, central banks and the like. The major players in the market are the “Primary Dealers”, the largest banks in the world, Citibank, Goldman Sachs, JP Morgan and the like. There used to be 44 of them but through mergers over the last 30+ years they are down to 16 or so. These firms are authorized to transact business with the US. Treasury through the Federal Reserve Bank of NY. They are required to bid on all auctions held by the Fed when issuing new Treasury Bills, Notes and Bonds, they issue over 100 billion in new securities per week.

 It is all about scale for these players, when you have massive positions, minor price movements matter. On my desk which was the 5 year swap desk, the minimum trade was 10 million. Meaning you would buy or sell 10 of one issue and sell or buy the weighted amount of the 5 year benchmark treasury, or the current 5 year note. Customers only start to notice when the trade starts working up, meaning multiple buyers or sellers and the amount of the trade works into the hundreds of millions. Not an uncommon experience. 

 To put it in perspective, bonds are priced in increments of 1/32 and  1/32 per million is $312.50. Say you had a billion of an issue priced at par or 100. The value of said security goes up by a ‘plus” or half of 1/32. Your profit would be $156,250. Not bad for a day’s work while being subject to all sorts of market influencers throughout the day, Fed comments, economic releases, customer selling of the issues you own, other market traders going against you, etc… this is a simplistic explanation but I have worked with guys and watched them make or lose millions with equal grace. Otherwise you would hurl yourself out the nearest window. 

Thank you

That  is very easy to understand, and grasp what I have wondered about a long time. 

Alexander Hamilton was one of many, we were very lucky to have had.

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Been in the corporate world, a large chemical company headquartered in Delaware, had many different jobs before I retired 5 years ago.  Started as an electrical draftsman, and ended as a Global Infrastructure lead for SOX auditing.  I would never go back, but I am thankful that I made it to a retirement and all that comes perks and benefits the come with it.  

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37 minutes ago, Deaconfan said:

Minister and formerly a pilot.

Welcome. There's a joke in there somewhere. 🙂
 

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8 hours ago, Deaconfan said:

Minister and formerly a pilot.

Cool on both fronts.  A good friend and my prior pastor is a huge bourbon fan.  He used to have a huge clear water cooler jug filled with WT101 in his kitchen.  I imagine this conjures up a lot of thoughts for folks but it was all in good spirit and he drank in moderation.  He knew what he liked and he enjoyed having it as a center of conversation.  I miss spending time with him.  

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