Reminiscences of Things Past

January 15th, 2009 11:35 am | by John Jansen |

A paid up subscriber and friend of the blog passed along to me a note that the Treasury had called the 13 1/4  May 2014 bond. Obviously, with that coupon the taxpayers will benefit greatly from the call and subsequent refinancing.

I post this because I recall that bond as the last bond to trade at 14 percent. It was issued as a 30 year bond in May 1984. In those days the treasury issued callable long bonds but the call protection was 25 years. Anyway, on the settlement day May 15 1984 the owners threw up all over their shoes and the futures market was down limit. The new bond traded to 14 percent in the cash market. The rest is history as its successor sees nothing but buyers today in the 2.80s.

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  1. 8 Responses to “Reminiscences of Things Past”

  2. By Danny on Jan 15, 2009 | Reply

    BTW, for all of you whom have not yet read the book, it is a classic and a must!

    Reminiscences of a Stock Operator
    http://en.wikipedia.org/wiki/Reminiscences_of_a_Stock_Operator

  3. By Greg on Jan 15, 2009 | Reply

    Wonder if the calling/retirement of the last “certificate of confiscation” will mark the height of bond prices — just as its issuance signaled the lows

  4. By paul on Jan 15, 2009 | Reply

    why did the price of this bond decline so much over the past year? is it because investors knew it would be called?

    http://cxa.marketwatch.com/finra/BondCenter/BondDetail.aspx?ID=OTEyODEwREo0&Range=1year&GraphType=Price

  5. By Anarchus on Jan 15, 2009 | Reply

    My recollection is that the bond futures market went limit down two days in a row back in May 1984, and international observers noted that in any other country when a government debt offering went so badly (to some extent the US offering almost failed) the Treasury Secretary got fired. Don Regan was Treasury Secretary at the time, though he later Job Swapped with White House Chief of Staff James Baker.

  6. By John Jansen on Jan 15, 2009 | Reply

    Anarchus,

    Thanks for the history. I honestly dont remember the failed auction or the limit down move on successive days.

  7. By barry on Jan 16, 2009 | Reply

    If I recall correctly, Continental Illinois bank was on the brink of failure in May of 1984. There were fears that CINB would bring down Chase Manhattan Bank.

    The ‘auction strike’ was an early attempt by foreign creditors of the US (many Japanese institutions had deposits at CINB) to force the US govt to buckle.

    1984 was an election year. Also, on June 6, Reagan had big “D Day celebration” (the 40 anniversary) with fireworks, warships, American flags,the works.

    The last thing he wanted was a financial crisis.

    The FDIC bailed out all depositiors for the full amount (not just the $10K principal) including interest.

    The ‘bond buying strike’ ended. The D Day celebrations took place without any shadow of a banking crisis.

    And that is how ‘too big to fail’ all started.

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