Interview: Vice president and treasury trader with PIMCO
>> a top story we’re following today is the reissuance of the 30-year bond. as for 10-year treasuries, prices higher. looking at the shorter end of the yield curve with the five-year at at 4.12%. as for the two-year, yield at 4.02%. with that overview, let’s get more, now, on that decision to bring back the 30-year treasury four years after the government stopped issuing it, we’re joined by steve rodosky, vice president and treasury trader with pimco. good afternoon, steve.
>> hi, thanks very much.
>> lay out the scope of the story for us. what is the historic importance of today’s announcements?
>> it’s a response by treasury to consistent demand over the course of the last few years from the wall street community and from the pension community to provide the marketplace with longer duration security than was currently being offered for the last few years. to better match liabilities, i think.
>> so, then, from the perspective of the pension funds, of the insurance companies, how important is this move to them?
>> it’s tough to say at the outset. i think certainly over the long run, it will be well sought after, a current issue 30-year bond. i don’t know that right off the bat it will start with a lot of fireworks but in the long run, there’s certainly the need for that type of security out there so in the long run, it should do fine.
>> there is the issue, of course, the government lowering borrowing costs by locking in the historically low rate. but let’s talk about the question, was the u.s. forced into this? for example, by france? by the u.k., which do sell longer maturity bonds, again, that are attractive to pension funds?
>> forced is probably a strong term. i think treasury response to structural sources of demand rather than making rate calls, and i think they had a lot of evidence globally over the last few years that there was solid demand for this type of product for them to bring back to the market .
>> what does it mean, then, for the government’s borrowing costs? let’s address that angle of the story.
>> what they’ve been able to do in the interim since the cancellation in 2001 was to lower the average maturity of their debt from just under six years to currently around 4 1/2 years so in the meantime they’ve been able to reduce their risk profile a little bit and this just gives them another avenue to provide more diverseity within their own portfolio.
>> we talked about the pension and insurance companies, we talked about the government’s borrowing costs, what does the move mean for pimco today?
>> today, in the here and now? most institutional traders are behaving like good cub fans and waiting until next year to find out what this really means. the real event is six months out so i think there still has to be more work to be done before we know what it means for relative value opportunities along the curve.
>> were you in the market today in reaction to the news?
>> not too much, really, no. no, it was kind of a thinly traded day, so to speak.
>> at what point do you start reacting? you gave us some of that, but give us more perspective and what it means for investors in terms of what are the sign posts along the way as we get closer to that issuance for investors to know that now is a good time to enter the market ?
>> well, when they bring the bonds in february of next year, i think from an individual investor perspective, so long as their horizon, investment horizon would call for a 30-year type of instrument, then it would be prudent for them, likely, to have the so-called risk-free security with no credit risk attached to it. as part of their portfolio. things willl be watching for will be the general level of interest rates and kind of the inflation forecast going out there and then how it fits along the yield curve relative to the nearby securities, which are already out there.
>> want to turn attention, briefly, to the 10-year treasury. did you see those prices really jump today with the yield moving down to 4.29%. some people pointing to the technical level, 4.35%. how significant is that?
>> i think this the short term, it’s fairly significant because much of the day-to-day trading has been speculative in nature so it is being kind of driven by the technicals in the here and now. i think today’s rally probably most likely attributed to a smaller than expected refunding package from treasury for next week so a little bit of a scarcity premium runup. also with the ever important jobs report coming due on friday, probably time for some of the short time traders to take risk off the table. >> steve, thanks so much for joining us.
>> thank you.
>> steve rodosky of pimco joining us from california. crude oil fell from a record today. we’ll take a quick break and return with su keenan, taking a closer look on what reversed that rally.
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Interview: Chief Executive Officer with Cigna
letting the government lower borrowing costs as well as meet demand for longer term debt this is prudent debt management and if we can issue bonds on our calendar, we should do so because it diversifies our borrowing costs, brings in new investor groups. we think it’s a prudent thing to do.
>> a new long bond will be issued starting in the first quarter of 2006. we’ll get reaction to the hirst rick decision from steve rodosky, vice president and treasury trader with pimco. let’s take a closer look at what happened in the stock market today. the dow rose as shares of microsoft jumped, ending up .1%. the s&p little changed, remaining near a four-year high as oil prices retreated from record highs. second-quarter profit at electronic data systems, e.d.s., fell to $26 million, five cents a share. excluding costs, the company earned nine cents a share, beating a may forecast for a loss of two to seven cents a share. the company did come out with preliminary results last week of that nine cents so investors had had a preview of that number. sales dropped to $5.2 billion and e.d.s. today saying it will beat wall street profit estimates as they cut costs, closes offices and turns around money-losing contracts. the big deal of the day, adidas salomon buying reebok for $3.8 billion, making the move to narrow the gab with nike. reebok shares soared 30% on the news. looking at the deal, we have june grasso.
>> thank you very much. the competition begins. adidas challenges nike for the first place position. the stock of all three companies rose on the news with the adidas shares rising to the highest in more than seven years and reebok climbing 30%. adidas is offering 34% more for each share of reebok over yesterday’s closing price.
>> it seems a premium price but it’s a bargain basement because reebok was high flying, lost its way for a while, traded down at a deep discount. paul fireman has done a great job in rebuilding the business but is only halfway back. so adidas got it at a perfect time and it’s a great combination of skills, size and scale.
>> the purchase will double adidas’ sales in the u.s. and the market where the company has been underrepresented. adidas, whose shoes are worn bisoccer share david beckham that, will have 20% of the u.s. market . adidas will gain the license to outfit the u.s. national football league and national basketball association.
>> it’s a perfect fit. we are very strong in europe and asia. reebok is strong in america. we are strong in the more european oriented sport categories like football and running. reebok is very strong in american sports like baseball, basketball and american football.
>> adidas plans to complete the acquisition in the first half and finance it through capital increases and debt. the company also reported earnings today saying second-quarter profit rose 34% to $160 million of analysts’ estimates. back to you.
>> june, thanks so much. cigna, fourth largest u.s. health insurance provider, reported a 43% jump in second-quarter profit helped by tax benefits. but even excluding items, results came in 43 cents ahead of what analysts expected. shares jumped after declines reached four million since 2002. the company boosted 2005 profit forecasts. what is behind the improvement? we’ll ask the chief executive, ed hanway from philadelphia, welcome.
>> thank you.
>> where do the higher enrollments you’re seeing come from?
>> the higher enrollments came across the board. we’ve been very focused on launching a series of new products over the last year. we’ve seen retention of existing business improved. we have more opportunities for new business and the goal this year was to stabilize membership, which we’re on track to do now through the second quarter.
>> what are those new opportunities that you’re talking about which really gets to the heart of the question, which is how confident are you the gains can continue?
>> we are very confident the gains can continue. particularly because, as this marketplace moves to a much more consumer-driven marketplace wheree employers are saying to employees, you take more of the responsibility for your healthcare, both in terms of the cost associated with it as well as in terms of your making decisions about it. we’re very focused on the consumer-directed healthcare marketplace and we’ve built a series of new products there. we have very robust health adviser capabilities and information to support those products and we think we can compete very effectively as we go forward in that marketplace.
>> what kind of growth in terms of the client base, then, are you anticipating?
>> well, we haven’t given explicit guidance for 2006, for example. we’ve said the goal this year was to stabilize membership. we’re on track to do that. but whether it’s in the national account market for the largest employers where we are very competitive, or in the broad regional markets where we compete on a nationwide basis, we see both increased retention of existing business and good new business opportunities so we’re optimistic.
>> your revenue was down in the quarter. tell us about your key plans to try to turn that around.
>> well, revenue, obviously, will move ultimately as our membership moves. and that’s really a function of how broadly we can grow and how many avenues of revenue increase we can find and we talked today on the earnings call about a number of those. clearly, in the national account and middle market , i’ve already mentioned. in the small employer segment where historically we have not been as active, we have a new suite of products launched there and focused market activity. in the seniors market broadly, that’s the fastest growing demographic in the country, they are a high utilizer of medical services and we’re very focused there on providing a unique set of products for the seniors market .
>> i want to return to medicare in a moment. but first, your shares are up 85% over the past 12 months. however, there is reluctance among investors and analysts questioning whether progress will continue, pointing to full-year earnings anticipated to be below 2004 levels. you have more than half the analysts rating your shares a hold. what do you say analysts who are concerned that stocks will not move higher from current levels?
>> we have been on a disciplined program over the last several years of improving our healthcare operations and we have very consistently delivered against the expectations we have put out there for our investors. we believe that kind of progress can continue. i think some of the scept skepticism is really around can we compete effectively in what has been a consolidating marketplace and can we stabilize and then grow membership. we took the first important step in that regard this quarter with stable membership.
>> in terms of ongoing consolidation, do you anticipate being a buyer or potentially a seller?
>> well, first of all, we feel very good about the position we have today. and we have been considering and have actively been participating in smaller acquisitions adding important participation forinous certain markets as well as greater capabilities. we’ve entered into a few strategic alliances in a few key markets to improve local presence. so we’ll continue to strengthen our position but job one is to stabilize and grow membership organically.
>> might potential deals be on the medicare market ? you are talking about the senior market and you made comments on the conference call about medicare.
>> we did. i ofnt to hasten to add that for us we are looking at the totality of the senior segment, so whether that is early retirees or people whose companies to continue to pay for benefits, we’re focused on that segment, as well. as it relates to medicare specifically, we are looking at potential expansion there. the first step of that is our national participation in the pharmacy program available to medicare eligible consumers beginning in january. that’s our first step.
>> thanks so much for joining us. we’ve out of time and leave it there.
>> thank you.
>> edward hanway, chief executive officer with cigna. we’ll take that quick break. when we return, the treasury department reviving the 30-year bond. how are investors reacting? we’ll put that question to steven rodosky, treasury trader with pimco.
