copyright1997reloaded
Thinks s/he gets paid by the post
I did not think this type of trading would help you..Why would someone buy your UST or GSE bond instead of buying a C.D.?
I've explained this over a number of posts, both here and in the CD thread. Here's a list of some of the differences:
1) If you have a lot of money to invest (e.g. $100 million), it is not feasible to buy CD's and still get FDIC insurance protection.
2) Given 1), Treasuries can be seen as lower risk vs. uninsured CD's.
3) There may be a perceived higher risk given CD's are backed by the FDIC insurance fund (but not a direct obligation of the US treasury).
4) (I haven't mentioned this before). Treasuries can be margined and can be used as collateral.
5) Many banks are scrambling for funds and thus must offer higher returns than "risk free" treasuries.
6) Whenever there is a flight to safety, the easiest and most liquid market is treasuries, thus the initial rush of capital will go there.
7) In contrast, the market for CD's has many many individual issues w/a variety of term sheets. The result of this is a market much less liquid.
Hope this helps.