Treasury Securities

At the heart of the scandal that has engulfed the powerful Wall Street investment banking firm of Salomon Brothers is its manipulation in the $2.3 trillion Treasury securities market that is used to fund the U.S. debt.By exceeding government limits on the purchase of certain Treasury securities, Salomon Brothers Inc., other dealers charged.Wall Street speculators say they lost money as a result and the market for Treasury securities has been tainted.Salomon chairman John Gutfreund and his deputy, Thomas Strauss, resigned Sunday.

Goldman Sachs, JPMorgan Chase and other big Wall Street banks are awarding multimillion-dollar bonuses to the same financiers who pushed the nation to the brink of financial ruin. President Barack Obama voices outrage, but he fails to take the actions available to him to stem the abuse. Wall Street has kept its mischief legal by salting the pockets of politicians running for Congress and president and by making certain that key policymakers at Treasury and the Federal Reserve are faithful Goldman Sachs alumni.

Everybody wants to own Treasury securities. Thanks to guaranteed repayment by Washington, they're almost the only assets that haven't fallen into the toilet. The Wasatch-Hoisington U.S. Treasury Fund owned Treasuries when they weren't cool. The fund, advised by Hoisington Investment Management of Austin, Texas, has been unflinching in its devotion to long-term Treasuries, which are risky when interest rates rise but do very well when the economy craters, rates fall and government guarantees are the only things investors trust.

Bigger than the budget deficit, America has a leadership gap. The economic recovery is not creating jobs; unemployment is rising; and the president and Congress offer little more than nostrums and platitudes. Republicans push tax cuts that experience teaches have doubtful prospects. Democrats, meanwhile, caution that "employment is a lagging indicator" - after a $759 billion stimulus has failed. It may be too early in the recovery for businesses to be hiring, but big layoffs should have stopped by now, and they have not. The huge trade deficit and reckless banking practices caused the Great Recession, and they still weigh down the economy.

WORRIED about stocks? Have some money you'd like to keep absolutely safe? The federal government has just provided small savers with another choice.You can now buy short-term and intermediate-term Treasury securities for as little as $1,000. Formerly, you needed $5,000 or $10,000 to play.Longer-term securities -- maturing in five years and up -- were already available for $1,000. But savers don't always want to lock up their money for that long a time. Now, you can use Treasuries for your shorter-term savings, too.That is, if you want to. The interest rate on Treasuries is generally similar to what you can earn on comparable bank certificates of deposit.

Whenever you read about a U.S. Treasury auction of notes or bonds -- as you may have done during last week's quarterly refunding of part of the public debt -- you may be tempted to submit a bid yourself.Sure, their prices will fluctuate until you get your principal back at maturity. Inflation might erode the principal's purchasing power.Still, you know that there are no safer securities in the world. And by going directly to the source (or the nearest Federal Reserve Bank or branch), you can avoid commissions.

NEW YORK -- What if the doomsayers are right and the stock market is ready to plunge after rallying all year?Individual investors may consider shifting some of their stock gains into U.S. government securities -- the safest bets around. "Selling some of your winnings and buying Treasuries now makes sense -- the stock market isn't going to the moon," said hTC Lew Altfest, who runs the New York-based financial consulting firm L. J. Altfest & Co. Inc.Treasury securities are viewed as safe bets for two reasons.

NEW YORK -- Individual American investors bought a recor $120.5 billion worth of Treasury securities last year, according to data from the Federal Reserve Board.The purchases by individuals came to nearly 45 percent of the $272 billion in securities issued in 1990 to finance the budget deficit."That is an eye-opening number," said William M. Brachfeld, executive vice president at Daiwa Securities America. "But in the aggregate, individuals are more intelligent making investment decisions than the professionals who manage money.

Automakers accounted for a sizable amount of the total debt issued Thursday as Ford Capital BV, an overseas unit of the Ford Motor Co., and the General Motors Acceptance Corp., the tTC financing arm of General Motors, priced $800 million in securities for offering to the public.Ford's financing of $500 million in non-callable seven-year notes, which are due to mature in 1998, was made through an underwriting group led Goldman, Sachs & Co. Underwriters gave the notes a 9 3/8 percent coupon and priced them at 99.933 to yield 9.387 percent, or about 154 basis points more than Treasury securities with a similar maturity.

WASHINGTON -- An IRS program to recover what could amount to billions of dollars of unpaid taxes from public bond issuers is sending tremors through local governments nationwide.At issue is an obscure practice known as "yield burning" that enriches brokerage firms and cheats the federal government. Caught in the middle are municipalities, counties, states and other agencies that issue tax-exempt bonds and, potentially, the buyers of those bonds.An Internal Revenue Service document issued July 19 is being interpreted as an attempt to coerce bond issuers into settling with the IRS or facing the potential of having their bonds declared taxable.

Everybody wants to own Treasury securities. Thanks to guaranteed repayment by Washington, they're almost the only assets that haven't fallen into the toilet. The Wasatch-Hoisington U.S. Treasury Fund owned Treasuries when they weren't cool. The fund, advised by Hoisington Investment Management of Austin, Texas, has been unflinching in its devotion to long-term Treasuries, which are risky when interest rates rise but do very well when the economy craters, rates fall and government guarantees are the only things investors trust.

PRESIDENT BUSH sincerely sees his push to change Social Security as compassionate conservatism. But conservatives ought to be troubled by the plan, which would let younger workers invest some Social Security assets via payroll taxes in corporate stocks and bonds, presumably through mutual funds. The proposal and its underlying assumptions breach rules that conservatives ought to hold dear. Among them: Keep business and politics separate. The world spent the 20th century learning the bad things that happen when the state owns the means of production.

Even if Americans never get the option - or burden - of investing some of their Social Security tax money, the idea still may have served a useful purpose: It could focus many people on the broader issue of where retirement savings belong. The accepted wisdom is that retirement money should be invested in the stock market, because that's where you can expect to earn the highest returns in the long term. But some financial experts say that's a dangerous assumption rooted in investors' recent historical experience - an experience that may tell us nothing about the future.

NEW YORK -Investors waiting for the Federal Reserve's decision on interest rates today are just as concerned about the policy statement accompanying the rate cut as they are about the size of it. Investors, traders and economists surveyed by Bloomberg News all say the central bank will lower its target for overnight interbank lending, or federal funds, which is 4 percent. While they don't agree on how much the cut will be, what they all want to know is what policy-makers see as risks to the economy for the next eight weeks - until they meet again Aug. 21. Yields on Treasury securities maturing in 10 years or more "will react to the Fed's statement more than the actual rate change," said Mike Sheridan, a director and senior portfolio manager who oversees more than $9 billion in assets for The Reserve Funds.

HERE'S SOMETHING that will surprise you, about the supposedly gloom-and-doom outlook for Social Security. By one official estimate, there's no Social Security problem at all.The forecast you hear most often says the Social Security trust fund will run out of money in 2034. That comes from Social Security's trustees, who make annual projections about the system's health.But Social Security's trustees make three projections, each based on a different assumption about economic growth.In public discussion, you always hear the "intermediate" projection, which warns that the trust fund will be used up by 2034.

WASHINGTON -- The U.S. trade deficit widened less than expected in July and consumer prices were little changed in August, government figures showed yesterday.Those findings -- along with other reports showing a decline in jobless claims and rising incomes for workers -- suggest that outside of a slowdown in manufacturing, the U.S. economy is holding up well in its eighth year of expansion, analysts said."There's enough momentum to keep the economy going despite the weakness in manufacturing," said Cynthia Latta, an economist at Standard & Poor's DRI in Lexington, Mass.

NEW YORK -- Political terrorists last week planted a time bomb in the U.S. Treasury. Its hissing fuse is laying waste to the normal way that the federal government pays its bills.But what happened may sound like routine partisan grandstanding. Congress refused to increase the federal debt ceiling unless President Clinton acceded to certain budgetary demands.He didn't, and that's forcing the government to scramble for money. U.S. finances are now in uncharted territory.If this time bomb explodes, it will drive up interest rates on Treasury securities as well as the cost of your adjustable-rate mortgage, home-equity loan and variable-rate credit card.

The Internal Revenue Service has notified municipal borrowers that more than 100 bonds might lose their tax-exempt status.Charles Anderson, manager of the tax-exempt bond group in the IRS' Baltimore office, said yesterday that he sent "adverse letters" to municipal borrowers warning them that the IRS has declared their issues taxable on a preliminary basis. He didn't disclose names of any of the issuers.He said most of the issuers in jeopardy of losing their status violated rules against arbitrage, or investing proceeds from tax-exempt bond sales in higher-yielding investments.