It appears as though bonds is the biggest game in town and Canadian banks are eager to play, but there not the only ones .

Tec

ps Sorry for the format it's been distorted by the blue print

http://www.bloomberg.com/apps/news?pid=20601109&sid=a9N6uWPey1V8

said they’re in discussions to join the network.

The increasing number of primary dealers, which underwrite the government’s debt and trade directly with the Federal Reserve Bank of New York, shows the traders who know the market best expect demand for U.S. debt to rise. President

needs that support to help stimulate the economy. The Treasury plans to sell a record $2.1 trillion of debt in 2009, or more than twice what was sold last year, according to Barclays Plc, one of the 17 primary dealers.

"You’re looking at a massive supply of government debt, which by its nature would give companies an incentive," said

1987 novel "The Bonfire of the Vanities."

Shrinking Numbers

The number of dealers shrunk from 46 in 1988 to 16 in February, the lowest since the network was formed in 1960, as the collapse of credit markets drove Bear Stearns Cos., Lehman Brothers Holdings Inc. and Merrill Lynch & Co. out of business or into the arms of acquirers.

More dealers would make it easier to trade, increasing the efficiency of government auctions. The amount of marketable U.S. debt securities has soared 41 percent in the 12 months ended June 30 to $6.6 trillion, closing in on Japan, whose $6.9 trillion bond market is the world’s largest.

"The more capital that’s committed to the auction process, the tighter the auctions will be," said

, who is leading MF Global’s efforts to join the group, and has worked at four dealers since starting in the bond business in 1980. "That allows for a lot more liquidity."

‘Undersubscribed Auction’

The Treasury Borrowing Advisory Committee,

works with policy makers, wrote in a February memo that more dealers would reduce "the possibility of an undersubscribed auction."

A declining number can make auctions less efficient. Last year, yields on

averaged 4.9 basis points more at auction than in the secondary market just before the sales, according to Stone & McCarthy Research Associates in Skillman, New Jersey. In the three years before 2007, sales drew a yield, known as a tail, just below the pre-auction rate.

of the Treasury in Washington, declined to comment.

While returns plunged this year, demand for government debt has never been greater.

The securities tumbled 4.64 percent in the first half on speculation supply would overwhelm demand, Merrill Lynch & Co. index data show. Ten-year notes yielded 2.21 percent at the end of 2008.

Bidding Soars

The yield on the benchmark

yield rose 34 basis points last week, or 0.34 percentage point, to 3.65 percent, according to BGCantor Market Data. The 3.125 percent security maturing in May 2019 fell 2 24/32, or $27.50 per $1,000 face amount, to 95 22/32. The yield rose 6 basis points to 3.71 percent as of 6:33 a.m. in New York today.

Demand from indirect bidders, whose ranks include foreign central banks, increased to 30.4 percent of debt sold through auctions this year, from 21.6 percent in 2008, according to data compiled by the Treasury Department.

Bidding soared at the seven 10-year auctions this year, with sales averaging $2.54 of bids for every $1 of debt sold. At this point in 2008, the four 10-year note auctions averaged $2.17 in bids per dollar sold.

"You’d think they’d have a positive outlook on the Treasury market if they’re going to be involved" in becoming a dealer, said

, who oversees $8 billion at SEI Investments Co. in Oaks, Pennsylvania. "It’s a business decision, and the expectation is the market is going to remain intact and healthy. If you had doubts you wouldn’t do it."

Sherman McCoy

Wolfe’s

highlighted Wall Street’s excesses during the 1980s through corporate bond salesman Sherman McCoy, whose life unraveled after his mistress hits a poor black youth with his Mercedes while lost in the Bronx.

The seizure in credit markets that began two years ago helped show how Wall Street’s use of borrowed money and holdings of derivatives from credit-default swaps to collateralized loan obligations fed even bigger paychecks. Lehman Brothers Chairman and Chief Executive Officer

earned almost $500 million in the eight years before the collapse of his firm in September.

More than $15 trillion in losses and writedowns by the world’s financial companies contributed to the deepest financial crisis since the Great Depression. The U.S. government is now selling record amounts of debt to pay for Obama’s $787 billion fiscal stimulus.

Firms joining the primary dealer group are hiring traders and strategists from the Fed’s current counterparties.

‘Flows of People’

"You’re seeing not just the flows of capital but also the flows of people coming from some of those large firms," said

, president and senior managing director of electronic trading system BondDesk Trading LLC in New York.

In March, Toronto-based TD Securities Inc. hired

declined to comment.

Toronto-based Royal Bank’s RBC Capital Markets hired former Credit Suisse Securities strategist

, was among the more than two dozen hires at CRT.

Basic Requirements

New York-based

, left after eight months to join Nomura Securities, a unit of Japan’s largest brokerage, people familiar with his plans said last week. He previously worked for Lehman Brothers in New York.

Primary dealers serve as counterparties in open market operations, the central bank’s mechanism for maintaining its

Dealers grew from 20 in 1970 as the U.S. budget

rose to $155.2 billion in 1988 from $2.8 billion. Membership then contracted in the 1990s as the Clinton administration produced three consecutive budget surpluses, curtailing the amount of debt sold. Deregulation of the financial industry led to mergers that eliminated dealers Donaldson, Lufkin & Jenrette and PaineWebber Inc.

Soaring Deficit

The deficit is projected to quadruple to $1.85 trillion in the fiscal year ending Sept. 30, equivalent to 13 percent of the nation’s economy, according to the Congressional Budget Office.

Bond trading is still the mainstay for Wall Street’s profits.

said last week its fixed income, currency and commodities group generated a record $6.8 billion in revenue in the quarter ended June 26.

’s investment banking revenue, which includes bond trading, rose 33 percent to $7.3 billion in the quarter ended June 30 from a year earlier. Both New York-based firms are primary dealers.

"It’s become a much better business to be in because of the built-in and ongoing supply that is going to be generated by the government," said

, an interest-rate strategist in New York at institutional brokerage firm Newedge USA LLC, who started in the bond business in 1980. "It pays to be a distributor of sort of an endless supply of any product."

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Last Updated: July 20, 2009 07:14 EDT