Trader's Cry: "This Market Stinks"

Wall Street's bond market traditionally has been the haven for little old ladies with poodles. Unlike the frantic gold or stock exchanges, the "fixed income market" was as relaxed as a Norman Rockwell painting. On a normal day, prices might change one-sixteenth of a point.

No more Since the Federal Reserve constricted money, bond trading has been more Jackson Pollock than Rockwell. Says Merrill Lynch Vice President Peter Goldsmith: 'This has been the worst period the bond markets have ever experienced.

Prices gyrate two or three points between lunch and cocktails. When interest rates rise bond prices fall--and often sharply. That is because securities sold earlier at lower rates are less desirable than new bonds that will pay a higher return. In just a few hours last month, the price of 30-year Government bond fell two points--from 91% of face value to 89%--and bond dealers lost $20,000 on a mind lot $1 million purchase of the issue. In this environment, corporations are forced to raise interest rates still higher to attract new customers. Since the beginning of September, rates on the best corporate bonds have climbed from 9.33% to 11.87%.

Four New York bond trading houses have failed. One of the victims is Frederick Gorsetman, 34, who, riding along with rising bond business in August 1978, opened his own firm. But when the Federal Reserve drove up short-term interest rates, his firm had to absorb devastating losses on bonds that no one would buy. After three weeks of harried days on Wall Street and sleepless nights in his Riverside Drive apartment, Gorsetman closed his ofiice's front door. Although he is now looking for another job on Wall Street, he says bitterly, "The market stinks."

Such tales have not been limited to small firms. Chemical Bank, which lost $6 million in post-Volckerism bond dealing, abruptly fired its trading manager. A billion-dollar sure thing-- the issuing of IBM bonds last month-- turned into a pumpkin for such blue-ribbon investment bankers as Salomon Bros., which had underwritten the deal. Because of difficulties selling the IBM securities, Salomon and other traders had to swallow losses of $10 million. For the once staid bond market, it has been a fitting 50th anniversary of the Great Crash.

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