Excerpt from our Wall Street Breakfast, a one-page summary of this morning's key market-moving and stock-moving stories:
Treasury Trading Draws Scrutiny [Wall Street Journal]
Summary: Zurich-based banking company UBS AG is being investigated by the SEC under suspicions its traders illegally manipulated the bond market. In addition, a bond trader at fellow Zurich-based bankers Credit Suisse recently left the firm on suspicion of irregularities in his bonds trading practices. The government inquiry into the $4 trillion treasury market has been unfolding for several weeks amid concerns traders have been limiting the supply of certain Treasury issues to the public and then profiting by lending those securities out at favorable interest rates. Though any improper activity that may have occurred doesn't seem to have had a big impact on interest rates - they which remain very low - government regulators aren't taking the charges lightly. Many bonds dealers counter that the actions under question often occur as part of normal trading activity. The investigation of UBS involves activity that took place in February, though it isn't clear which Treasury issues are being probed by the SEC. One possibility is a five-year Treasury note (4.25%) due in January 2011 which was in especially short supply that month. The matter has been referred to the SEC and Commodity Futures Trading Commission and on November 6, officials from the Federal Reserve Bank of New York will meet with 22 big bond dealers to discuss their concerns.
Related links: 'Copycat Syndrome' - Is There Any Difference Between Swiss Bankers Credit Suisse and UBS? Wall Street Says Yes • UBS Says Cooperating in U.S. Treasury Bonds Probe [Reuters] • UBS Cooperates With US SEC Probe into Treasuries Transactions [Forbes] • The Case for Bonds , and the Problem With Bond ETFs - SeekingAlpha
Potentially impacted stocks and ETFs: Credit Suisse Group (NYSE:CS), UBS AG (NYSE:UBS) • iShares Lehman Aggregate Bond (NYSEARCA:AGG), iShares Lehman 1-3 YR Treasury Bond (NYSEARCA:SHY), iShares Lehman 7-10 YR Treasury Bond (NYSEARCA:IEF), iShares Lehman 20+ YR Treasury Bond (NYSEARCA:TLT)
Seeking Alpha is not affiliated with Wall Street Journal.