Primary Dealers in the Digital Age

TBAC recommends U.S. Treasury stop selling bonds directly to investors, as primary dealers see roles diminished and fear disorder in markets if investor demand declines.

The Masters of the Universe immortalized by Tom Wolfe in his 1987 novel “The Bonfire of the Vanities” are feeling like mere mortals.

The Wall Street banks known as primary dealers because they get to trade with the Federal Reserve and raise the money that the U.S. government needs to operate are concerned they are being marginalized because of advances in technology. So worried are they that the group wants the Treasury Department to curb the increasingly popular practice by investors of buying bonds directly from the government without their involvement.

TBAC Chairwoman Dana Emery, the chief executive officer of mutual-fund firm Dodge & Cox Inc. in San Francisco, declined to comment, said her spokesman, Steve Gorski. All of the 14 other members either declined to comment or didn’t return calls.

“We’re always trying to take stock of where we’re at and make sure we understand how new developments in the marketplace are impacting our ability to finance ourselves,” Matthew Rutherford, the Treasury’s assistant secretary for financial markets, said in a Feb. 20 telephone interview.

Treasuries in 2013 suffered their first losing year since 2009, dropping 3.35 percent in value as yields rose, according to Bank of America Merrill Lynch index data.

Yields on 10-year notes are forecast to climb again this year, to 3.37 percent, according to the weighted average in a Bloomberg survey of 74 participants. The yield on the benchmark 2.75 percent security due in February 2024 was 2.75 percent as of 1:49 p.m. in New York, Bloomberg Bond Trader prices show.

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