The Diminished Prop Desk

Daniel Och recently stated that "The proprietary trading desks at banks are substantially less active."  This claim seems to be supported by today's Heard on the Street column by Justin Lahart.  Mr. Lahart uses the yields on Resolution Funding Corp zero-coupon bonds to prove the point. 

 Refcorp was set up in 1989 to fund the Resolution Trust Corp., the government-owned entity created to address the now quaint-seeming savings-and-loan crisis.

It issued about $30 billion of debt, and because that debt was backed by the full faith and credit of the U.S. government, investors came to view it as nearly the same as a Treasury debt.

The spread between comparable Refcorp debt and treasuries has been around 100 bps historically.  However it is around 700 bps right now.