The Yield Stretcher

After having spent over 26 years in the financial services business and nearly 20 of those years on a large bulge-bracket Fixed-Income Trading desk, camaraderie and practical jokes are literally a way of life. In an effort to break-up the monotony and lack of excitement that invariably occurs during the quieter summer months when activity naturally slows down, idle salespersons and traders create devious ways to entertain themselves often at the expense of unsuspecting new-hires and summer interns.

The following story involves one such devilish activity. Though innocent enough, especially by Wall Street standards of behavior, it was no less entertaining to all the participants despite its lack of unmitigated debauchery. In short, this was a Wall Street version of a snipe hunt.

To set the table, allow me to paint the picture of the Fixed-Income trading floor. As is typical for such businesses, the need to pack in a large number of people that require constant and immediate communication requires row upon row of trading desks that are arranged to tightly pack-in the employees. Each person can easily stretch out their arms, and with a little lean in either direction touch the shoulder of the person sitting on either side of them; or lean backwards and spin around hitting the person sitting directly behind them. These trading floors are usually located on the lower floors of the New York high-rise buildings and can house as many as 300 salespersons, traders, underwriters and various support personnel. Additionally, they are usually comprised of various Fixed-Income trading groups, that may need to coordinate activities at any point in time. The trading floor in this story fit this model, and contained as many as 75 employees in each business unit including; Government Bonds, Mortgage-Backed Securities, Municipal Bonds, Corporate Debt, High-Yield Bonds and Derivative Products to name a few.

It was in the summer during the mid-90’s and I had transferred into my business unit from another, much less interesting part of the Firm in October of the previous year. I had worked and supported many of the aforementioned business units in various capacities for a few years so I had solid relationships throughout the entire floor and most importantly knew the personalities of a lot of the players involved. I was one of the youngest/newest traders in the division but had my own trading book and was well aware of the nuances of the joke having spent enough time on the floor during previous years. Fresh-faced new hires just out of college, as well as interns, usually spend some time sitting sandwiched between more senior traders or salespersons and are expected to listen diligently, absorb information, help in any way that they are instructed to and stay the hell out of the way. Thankfully, I was hired with previous business experience and wasn’t ever included in this new hire rite of passage.

The beauty of this story was the ballet-like choreography that organically occurred since every person knows the running gag and nobody wants to be the one to break the chain. One boring Friday afternoon, Greg R. one of the more senior traders on our desk, started the ball rolling. He had a particularly annoying, eager to please new-hire, named Jimmy, situated next to him that seemed to invite the very torment upon himself he was about to endure. Greg R. by all measures was a particularly cunning and merciless assailant that willingly started the abuse of said new-hire for no other reason than pure entertainment for the rest of the floor.

Earlier in the day, Greg R. had purchased a block of securities that he had re-offered and was hoping to move to lock in some profits that afternoon. But given that this was a lazy summer Friday, no miracles could be expected to happen. With Jimmy hanging on every word, Greg R. starts to mutter (not exactly to himself) that if he only had a little more yield in the offering he might be able to find an account interested in relieving him of this position. Since he purchased the position at a 5.25% yield and marked them up 5.20% to give himself a little negotiating room but still provide a few basis points of profit; a 5.25% sale price was not what he was hoping for since that would not be profitable. But, a 5.25% price could be enough to entice a client to buy the bonds. For the non-Fixed-Income readers – as yields move lower, the dollar price of bonds moves higher and it’s a zero sum game. So if a trader buys and sells bonds at the same price, they generate zero revenue. Jimmy, intent on proving his worth and providing some help took the bait like a marlin off the Florida Keys. He asked Greg R. one simple question that would seal his fate despite the previously mentioned explanation of bond math, “How do you get more yield in the bonds?”

I can almost picture the inner glee that Greg R. began to experience as the door was opened to start the chain of events that would result in widespread humiliation for Jimmy. Greg R. then began to explain to Jimmy in a loud enough voice for a good 15 to 20 people around him to hear that the only way to do that is to use the “Yield Stretcher” but he doesn’t know where it is. As he was explaining that there is only one such device on the floor he starts making subtle eye-contact with others as they start to pick-up on the proverbial releasing of the hounds. At the risk of explaining the obvious, there is no such device and there is no way to influence the yield upon which one is able to sell a security without reducing the price of the bond. Thus the “Yield Stretcher” assumes the place of the imaginary snipe that has tormented many new campers unaware of the ritual absurdity of chasing an imaginary bird in the dark woods at night.

In a sudden moment of clarity, Greg R. remembers that the last person to have the yield stretcher was Nate K., head of sales for the desk. Greg R. instructs Jimmy to go ask Nate K. for the device so they can sell the bonds. Jimmy, eagerly heads over to Nate K., across the desk and down a few seats from his location, but well aware of the ensuing gag. Nate K. is actively pretending to be busy on a phone call, but keenly aware of the machinations underway. Given Nate K’s significant role as head of sales he keeps Jimmy waiting next to him to build up tension at the expense of an eager victim hoping to demonstrate his worth by helping Greg R. move this position.

When he finally gets off his fake phone call and asks Jimmy what he needs, the number of people aware of the gag begins to spread. Nate K. begins to think out-loud about where the yield stretcher could be and even rummages through his cabinet drawer to see if he placed it inside. Then he shouts down to Chuck G. another salesman in the group a few seats away asking him where he could find the yield stretcher. Without missing a beat Chuck G. reminds Nate that he had lent it to Doug O., in underwriting, since he needed it to price a new deal.

At this point in the story its worth mentioning that this gag usually runs for about 10 minutes and the unwitting new-hire usually figures out that they are the butt of a joke after chasing around the trading floor to 3 or 4 people. Additionally, the gag usually remains contained within one of the business units so it rarely extends to other trading desk groups. As you can guess by this side-bar, poor Jimmy is about to make history.

Jimmy heads over to the underwriting group that is situated a bit far away from our business units sales and trading desk. As he walks away, the rest of the desk starts to snicker and enjoy the moment, but expects that the cover will soon be blown. Now, Doug O. is a particularly surly, and abrupt character as head of underwriting business, but as funny and wry as they come. If you picture a version of Bob Newhart in terms of personality, you have a pretty clear impression of Doug O. We are all expecting him to quickly and dismissively send poor Jimmy away since he is not one for words, but as a veteran of the trading floor is well aware of the mission. Since Jimmy had to walk 20 yards back to the desk, but well in view of the group, everyone had to keep their heads down and pretend to be busy waiting to hear what young Jimmy had uncovered.

Much to my great pleasure, I soon felt the presence of Jimmy patiently waiting next to me as I finish up my fake phone call. I was so honored to be included as an active participant of the joke. I couldn’t help but steal a glance around Jimmy towards Doug O. as he explained that he has been running around the floor for the yield stretcher and was told I was the last to have used it. Despite Doug O’s aforementioned persona he was grinning from ear-to-ear as he watched this unfold. Additionally, my seat was located at the last row of our business unit so I could see over 60 pairs of eyes watching as Jimmy had his back to the rest of the group. At this point, Jimmy appeared to still be quite earnest in his search and relatively upbeat, despite the futility of his task.

To quote Voltaire, the French Enlightenment philosopher, “With great power comes great responsibility.” This was going to be a seminal moment in my career. Being a younger and newer member of the group I couldn’t drop the ball, as I had received the opportunity to be an active participant in the gag. If I was to be the one to break the chain, I could have possibly faced an onslaught of abuse. If, however, I kept it alive…. my status within the desk could be well cemented in history. It was at this point that I pulled off one of the greatest moves in yield stretcher lore.

As mentioned, my previous role provided me with ample opportunity to know the players throughout the entire trading floor in other business units. At this point in our story, since my entire group was aware of poor Jimmy’s fate, I made the split-second assessment to extend the courtesy to our fellow colleagues located on the other side of the floor. I directed Jimmy to go ask Freddie M., head of Corporate bonds — a good 50 yards away. I selected Freddie M. for a number of reasons. First, he was located all the way across the floor, so the joke would be spread to include the entire Fixed Income Trading business. Second, Freddie was a tall, gregarious, easy to point out figure all the way across the floor — so I could easily direct Jimmy to someone that he didn’t know. Third, Freddie M. was a complete ball-buster and would easily keep the gag alive; and being head of his desk, his entire team would quickly fall in behind Freddie’s lead.

As poor Jimmy, eager to please, and nervous not to disappoint, trekked across the floor on his mission, we watched as he approached Freddie. Since we were well out of ear-shot, I can only guess that Jimmy indicated that I had directed him to Freddie in search of the elusive yield stretcher. Freddie M. looks over at me as I stood up at my desk and we lock eyes in acknowledgement of the ruse. Then in a booming voice he loudly shouts out to his group asking for the yield stretcher. Now the joke has spread and nearly the entire 300 person trading floor is aware of Jimmy’s mission and the Wall Street snipe hunt carries on for over one hour.

Finally, I’m not even sure how it ended, but Jimmy’s search for the yield stretcher eventually concluded and the entire floor enjoyed the moment as he trudged back to our group, his face beet-red with a mix of shame, humiliation and probably a bit of anger. In celebration, the entire trading floor whooped, clapped, shouted, hooted and hollered as if we just won the Super Bowl, World Series, Larry O’Brien Trophy and Stanley Cup combined.

Needless to say I received many accolades from my entire group, not to mention many others on the floor for successfully helping pulling off perhaps the greatest yield stretcher prank in the history of Wall Street. I have no idea as to what became of poor Jimmy, but if he survived his Wall Street trial by fire and came out mentally unscathed he could be one of the most ruthless traders in the business. If not… he could be another Ted Kaczynski.