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Treasury Probes How Consultant
Got Early News About Long Bond
By JOHN CONNOR and GREGORY ZUCKERMAN
Staff Reporters of THE WALL STREET JOURNAL
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The Treasury Department is investigating how a private consultant was able
to attend a government news conference and give clients early word of the
decision on Wednesday to stop selling 30-year bonds, an announcement that
sparked the biggest bond-market rally in more than a decade.
Some traders attribute sharp movement in the price of the 30-year bond --
during the half hour or so before the official announcement -- as a sign
that some investors may have pocketed substantial profits by trading on the
information before it was publicly disclosed.
The leak of the news, along with the earlier-than-expected release of the
announcement on the Treasury's own Web site, has dented the credibility of
the department under Treasury Secretary Paul O'Neill and angered some of
Wall Street's biggest firms, which were caught by surprise by the
government's decision.
The controversy began when an industry consultant, Pete Davis, attended a
press-only briefing that started around 9 a.m. on Wednesday, an hour before
the official release of the announcement. The news was supposed to have been
embargoed until a formal release at 10 a.m., but Mr. Davis acknowledges that
he informed some of his clients of the news before the release time.
An early rally in the 30-year bond may have been the result of buying by
investors who heard the news, either from Mr. Davis or secondhand, some
traders say. Between 9:30 a.m. -- about when the news conference ended --
and 10 a.m., when the news was announced, the price on the long bond rose by
more than 1½ points, or $15 for each $1,000 face value, to 104, after
trading during the previous half hour within a much narrower range of about
1/8 point.
By day's end, the news sent the bond market soaring to its highest level
since the stock-market crash of 1987, and even helped stocks, as investors
bet that bond investors would begin shifting some of their money to stocks.
Treasury General Counsel David Aufhauser said the department "is aware of
the suspected breach of its rules" and that his office is investigating. The
case may be passed to the Securities and Exchange Commission or the Justice
Department for further investigation.
The Treasury's announcement was one of the most important to the bond market
in years. The fact that it leaked out ahead of time, first from Mr. Davis,
then, inadvertently, on the Treasury's own Web site, has compounded the
anger of many bond traders on Wall Street who already were frustrated that
Mr. O'Neill's team made such an important move without giving the market any
notice.
"Clearly people knew something was up" thanks to Mr. Davis's actions and the
posting on the Web site, said Lou Crandall, chief economist at Wrightson
Associates, a New York bond-advisory firm. "There's outrage about the lack
of preparation for this announcement for the market, and what the leak means
is that some people were able to avoid losses."
In an interview, Mr. Davis said he emphasized to his clients that the
information wasn't to be publicly disseminated or used until the release
time set by the Treasury. The Treasury Department itself disseminated the
information early, by putting it on its Web site about 9:49 a.m., which
caused additional buying, traders said.
Before the formal 10 a.m. release of the decision to stop selling 30-year
bonds, the Treasury had held a 9 a.m. news conference to explain its
refunding plans. Such sessions are supposed to be limited to reporters with
proper credentials.
Mr. Davis said, "I've been going to these things for years." Asked how he
gets in, he described a straightforward process: "I call up and ask to
attend."
Mr. Davis said he attended Wednesday's briefing and confirmed relaying
information to people in the bond community before the designated release
time. But he stressed repeatedly that he told those with whom he spoke that
the material was embargoed until 10 a.m., and said they have assured him
they honored the release time.
He said he explained the Treasury's 30-year bond decision and other details
of the briefing to Stone & McCarthy Associates, a bond-research firm, and
James Capra, president of Capra Asset Management Inc. and chairman of the
Treasury Department's private-sector debt-management committee. Both are his
clients. He declined to comment on whether he gave the information to other
clients.
Mr. Davis, a former congressional aide who heads his own consulting firm
here, said he is "not credentialed press" but that it was "a public
meeting." He depicted himself as functioning like a news reporter in
providing information to clients, and complained at one point that "the
credentialed press get a big advantage."
He said Stone & McCarthy was able to release a complete analysis quickly
after the Treasury's public release of the information by virtue of his
report.
Mr. Capra promptly informed the Treasury Department of Mr. Davis's call,
people familiar with the matter said. Mr. Capra declined to comment.
Ward McCarthy of Stone & McCarthy said his company honored the 10 a.m.
embargo. He said he was surprised by the information Mr. Davis reported, and
remarked: "Looking at the price action, it seems somebody somewhere knew
something."
Indeed, officials said the long bond's price began pronounced movements
shortly after 9:30 a.m.
The Treasury's decision to suspend long-bond sales surprised Wall Street and
caused steep losses on some bond-trading desks. There also were some
winners, but they have been much less vociferous than the losers.
Write to John Connor at john.connor@xxxxxxxxxxxx and Gregory Zuckerman at
gregory.zuckerman@xxxxxxx
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----- Original Message -----
From: "tv" <tonyvare@xxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Monday, November 05, 2001 9:23 AM
Subject: [RT] WSJ.com - Treasury Probes How Consultant Got Early News About
Long Bond
> i would like to put this pete davis guy in a pit with bond traders that
were
> short that day.
> http://interactive.wsj.com/articles/SB1004925865251047960.htm
>
> To unsubscribe from this group, send an email to:
> realtraders-unsubscribe@xxxxxxxxxxxxxxx
>
>
>
> Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
>
>
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