NEW YORK -- Investors now can measure the cost of buying and selling Treasury bonds -- a first, according to Elkins/McSherry Co. Inc.
Elkins/McSherry, a New York-based investment consulting firm that specializes in performance measurement, has introduced a system for measuring the cost of buying and selling U.S. Treasury bonds.
The country's 200 biggest defined benefit plans had little more than 30% of their 2.5 trillion in assets in bonds last year. Richard T. McSherry, chairman, said a large share -- around a third or more -- usually is invested in domestic Treasuries, so the system has a potentially large market.
Large investors pay close attention to trading costs because they include not only such obvious elements as brokerage commissions, but also the spread between what they are willing to pay and what the other party wants to get. Moreover, the cost of buying and selling securities also includes "market impact" or the effect of the investor's decision on overall prices.
Because Treasury bonds are backed by the U.S. government and are considered to be a safe haven for investors in times of uncertainty, their prices can react sharply to monthly economic data.
The Elkins/McSherry system will help pension funds figure out whether they are paying too much, or whether they are getting a good price for their purchases and sales, said Mr. McSherry.
"There are certain trading decisions they might want to make relative to the cost information. They might want to change their trading patterns," he said.
Elkins/McSherry, which has more than 135 institutional clients for its global trading services, hopes to mine that client base for its latest offering as well, Mr. McSherry said.
"A number of them asked us to come up with the cost of trading Treasuries," he said.
Elkins/McSherry developed the T-bond trading cost measurement service through analyzing every price quoted for U.S. T-bonds since the beginning of 1997, and developing a weighted average for the price of every Treasury auction of bonds last year, around 240 offerings. The firm then compares the cost of an investor's trade against the weighted average price for that issue, by investment manager and broker, as well as against the announcement of economic data. The firm also compares an institution's trading costs against an average for around 100 other investors, for each issue of bonds.
The cost for the service will range from $5,000 and up, depending on an institution's holdings of U.S. Treasury bonds, Mr. McSherry said.
Chuck Connell, vice president of Chase Global Investor Services, Brooklyn, N.Y., which has a joint venture agreement with Elkins/McSherry, said he anticipates Chase pension fund clients will bite. "I think it will be interesting because there hasn't been much on fixed income," he said.