`Do-It-Yourself' bond traders displace Wall Street hot shots

By Daniel Kruger & Liz McCormick

NEW YORK: Time was, Sherman McCoy could stride into Pierce & Pierce to bray for money on the bond markets with other Masters of the Universe. That was 1987.McCoy, the hotshot bond dealer at the center of the “Bonfire of the Vanities,“ would be 66 by now, and he'd scarcely recognise the Treasury market.
The bond dealers who defined Wall Street success in the '80s -and who were immortalised by Tom Wolfe in his best-selling novel -seem to be losing power by the day.

In their place are money managers like Mark Macqueen, who are assuming a larger role in the market for US government debt as traditional dealers pull back.

The development is not only shifting the balance of power in the world's largest government bond market, but also making trading Treasuries more difficult for everyone. Macqueen used to be able to trade $40 million of Treasuries by calling one dealer. Now, he must spread out orders in small chunks across an array of electronic platforms and wait for a dealer to bite.

“The liquidity is provided by the clients, not the dealers,“ said Macqueen, a 34-year bond-market veteran who oversees $11 billion at Sage Advisory Services in Austin, Texas. “Bigger firms are finding it increasingly difficult.“

The problems investors face in Treasuries are small next to those in other smaller markets, such as the one for corporate bonds. Nonetheless, the issue has gained widespread attention on Wall Street and even begun to worry the Federal Reserve.

It has also underscored just how far the old Masters of the Universe have fallen.

“Being a Master of the Universe once meant some thing,“ Mark Rzepczynski, the chief investment officer at AMPHI Capital Management, said from Boston.

“Those days are over.“

The shift to a more do-ityourself approach to trading can be seen in many ways. At US auctions this year, the 22 primary dealers designated to underwrite the debt and trade directly with the Fed bought 36 % of Treasuries sold, the smallest share on record, Treasury data compiled by Bloomberg show.

Deutsche Bank, the biggest bond firm by trading volume, is looking to shrink its interest-rate trading business, a person familiar with the matter said this month.

And in the past year, JPMorgan Chase & Co., Morgan Stanley , Credit Suisse Group AG and Royal Bank of Scotland Group have either scaled back their fixed-income trading desks or are weighing reductions in those businesses.At the same time, electronic trading of Treasuries has proliferated over the past decade and now accounts for 44% of all transactions.