Treasury Investigating Bond Trading
The U.S. Treasury is investigating suspicious trading in the 30-year bond Wednesday after an investment consultant said he told clients the department was about to announce that it would no longer issue the securities.
Pete Davis said he provided clients with details of the decision based on a news briefing he attended before the release of the news sparked the biggest rally in the bond in 14 years.
“Did the Treasury make a mistake? Apparently it did,” said James Keller, a fund manager at Pacific Investment Management Co. in Newport Beach, which oversees $240 billion.
Davis, a former congressional aide who attends Treasury news conferences, was in a meeting of reporters at 9 a.m. EST that was advised of the decision to eliminate the bond by Undersecretary of the Treasury for Domestic Finance Peter Fisher, on condition the information not be released until 10 a.m.
Davis said he disclosed what he learned to representatives of Stone & McCarthy Research Associates and Capra Asset Management. James Capra, president of Capra, is chairman of the Bond Market Advisory Committee. He declined to comment on the firm’s role in the release. Ray Stone and Ward McCarthy, managing partners of the firm that bears their names, couldn’t be reached.
“I thought I was dealing with people who were writing analytical pieces who would honor the embargo for release time,” Davis, president of Davis Capital Investment Ideas, said in an interview.
The price of the 5.375% Treasury bond maturing in 2031 rose from $102.50 at 9:30 a.m., when the briefing ended, to $104 at 10 a.m. By contrast, between 9 a.m. and 9:30 a.m., the bond traded within a range of 0.13 cent.
Treasury Department General Counsel David Aufhauser said his office is investigating the matter.
“I will confirm that we’ve been made aware of assertions of suspected trading activity in violation of the embargo, and my office is looking into it,” Aufhauser said. The Treasury “will make referrals to appropriate authorities at the conclusion of the investigation,” he said. Those authorities may include the Securities and Exchange Commission and the U.S. attorney’s offices in New York and Washington, Aufhauser said, adding that a decision would come “almost immediately.”
Many federal agencies, including the Treasury, often brief reporters under embargo to provide for an orderly release of information. Other departments, including Commerce, Labor, and Agriculture, provide information to reporters in locked rooms with no telephone access ahead of release time, preventing any early disclosure.
The Treasury leaked its own announcement by inadvertently posting a statement on its Web site around 9:50 a.m. The department’s Office of Public Affairs issued a statement Wednesday evening confirming what it called an “inadvertent” leak. “Treasury regrets this occurred and will work to ensure the integrity of the announcement process,” the statement said.
“The Treasury needs to be a little bit more protective about how everything is released,” said Pimco’s Keller.
