Auctions of Treasury securities usually arent anything special for dealer firms on Wall Street, but this weeks sale of roughly $40 billion worth of two-year paper for the U.S. government was something more meaningful for Jefferies & Co.
New York-based Jefferies, which has aggressively expanded its presence in fixed income, was participating as a primary dealer in Tuesdays auction of notes - a first, since it only received the coveted status from the Federal Reserve on June 17.
Jefferies has a high yield group - a business it has been involved with for nearly three decades -- and a separate fixed income unit run by Tim Cronin that includes high grade corporates, mortgage- and asset-backeds, municipal bonds, emerging markets debt and a rates business.
Cronin said that the firm plans to expand its presence with new hires in the U.S. and overseas. It is up and running. We needed it up and running in order for the Fed to have given us our shingle, Cronin said of Jefferies Treasury desk. Weve been participating in the auction process through other dealers for the last two months.
He says the firm wants to add some more talent to its Treasury desk. Specifically, were still interested in bringing on sales people, both domestically and internationally to round our distribution platform for the product.
Cronin says the sales professionals would be involved with U.S. Treasuries and agency debt issued by Freddie Mac, Fannie Mae and Farmer Mac.
Jefferies has offices and professionals in London. It has a trader and sales staff in Tokyo, while a sales professional - currently on garden leave -- will join up in Hong Kong. These will be our hubs now, says Cronin, adding Jefferies has office space in India and Singapore that could serve as distribution points for securities.
Jefferies has remade itself dramatically over the last year; not only is it a primary dealer, it has expanded dramatically into mortgage bonds, municipal bonds and emerging markets debt. When it comes to mortgage bonds, it is involved with agency mortgage debt and private label MBS. We are trafficking in all asset classes, said Cronin, noting that the firm has been active in creating CMOs since the fourth quarter of 2008.
When it comes to the firms mortgage business, Cronin says Jefferies today has a pretty full team which has expanded into London where they will be involved with U.S. dollar and non-U.S. dollar mortgage bond products. Asked if European investors still have an appetite for securitized products, Cronin said he believes there are a lot of products still on balance sheets that have not yet been liquidated. So, part of the opportunity, near-term, over there is going to be just trying to recycle some of that paper to investors in Europe or investors here.
Among other business lines Jefferies would like to expand into is the business of providing interest rate swaps products. The interest rate swap business is something we would like to get into. We are not in it on a customer basis, says Cronin, adding that we are basically looking for that product to be more clearinghouse exchange traded.
When it comes to building a presence in credit default swaps, Cronin said once they become exchange traded clearinghouse eligible that would be something we would like to be involved with.
Meanwhile, Jefferies also wants to hire on more professionals, specifically bankers for its municipal bond business. We have a pretty fully staffed sales and trading effort thats in place, says Cronin. If we could focus on some of the bigger states and the better relationship bankers there that would certainly benefit the platform.
Jefferies presence in the fixed income arena comes at a time when three major forces have left the market Lehman Brothers and Bear Stearns are casualties of the credit storm that forced Merrill Lynch into the arms of Bank of America.
Cronin believes his firm now has a better shot at snaring more market share. These [trading] volumes need to be captured by somebody else. Somebody has got to pick up that slack and why shouldnt it be Jefferies?"