When trading in interest-rate futures began on commodities exchanges in 1975, there were warnings that another speculative bubble had been lofted.
But the bubble has yet to burst, and interest-rate futures are now the hottest thing in Wall Street, La-Salle Street in Chicago and the plush offices of brokerage firms in Washington. All of which is causing some concern among government policymakers.
Last year, as the Carter administration wrestled with inflation, investors poured some of their funds into Government National Mortgage Association, U.S. Treasury bond and foreign currency futures -- many of them betting that interest rates would rise and that they would benefit by putting their funds where their expectations pointed.
As a result, trading in American financial futures alone jumped about fourfold last year to $400 billion. That helped bring total commodity futures trading in 1978 to an estimated $1.65 trillion compared with $1.2 trillion the previous year.
By contrast, trading on the New York Stock Exchange last year totaled about $200 billion. However, the Big Board numbers represent mostly real investments while the bulk of commodities trading is done on margins -- requiring initial payments of as little as 5 percent of the total trading figure.
Because of increased reader interest in futures markets, The Washington Post today is expanding its daily market tables to include figures on trading of key financial futures instruments -- Ginnie Maes, Treasury bonds and bills, commercial paper, and eight foreign currencies.
In addition, The Post is adding quotations from stock options trading on the Midwest Exchange -- which will be added to daily quotations already published for the other four exchanges that trade stock options: the Chicago Board of Trade Options Exchange, American, Pacific and Philadelphia exchanges.
Another new daily table being added is bonds of the Federal National Mortgage Association, a Washington corporation under government regulation that supports a secondary market in home for the other four exchanges that trade mortgages and is the largest single owner of mortgages in the nation.
Because of these additions, the location of some tables has been changed. Expanded futures listings now will be included on the same page as over-the-counter securities trading (Page D13 in today's editons). Options quotations will be on the same page as American Stock Exchange trading (Page D12). And the government securities table will be expanded to include FNMA bonds and some futures (trading (Page D12).
To provide some space needed for these additions, The Post's stock options tables no longer will include volume figures for individual option contracts. Total volume data for each exchange and open interest -- the number of outstanding contracts at the end of each day -- will be continued, however.
As noted by Leslie J. Silverstone of the Washington office of Dean Witter Reynolds, trading in investments such as financial futures and stock options is a "complicated, very sophisticated, good business." And financial futures are "the fastest growing area in the investment field," said Al Graham, of Clayton Brokerage in St. Louis.
Virtually all brokers warn, however, that such investments should be made only by individuals or concerns willing and able to follow the specific markets on an hourly or daily basis; the potential for loss is the same as that of betting on horses.
Because of the soaring volumes in the financial futures markets, there have been expressions of caution in some Washington government offices. With large corporations and institutions more able to combat the ravages of inflation by making investments that pay off when interest rates rise, Federal Reserve Board policies aimed at curtailing expansion and bringing down rates may have lost some of the clout of previous years because investors are protected.
Worried Fed and Treasury officials asked the Commodity Futures Trading Commission to ban approval for additional financial futures contracts until a study of the impact is completed next month. There are fears that government financing could be affected adversely and that speculators could end up affecting government monetary policy.
Speculators are a key factor in the futures markets but Silverstone said they are active only on one side of most financial futures trades. "As long as one side [of a transaction] represents a genuine hedger... if the markets perform an economic function... people already taking a risk are now able to transfer it to those who want to take it, for whatever reason, because they have money... the speculators can assume the risk," Silverstone said.
Merrill Lynch, Pierce, Fenner & Smith, the nation's largest securities firm, is among companies that have become convinced that financial futures are here to stay. The New York investment firm is in the process of establishing a new financial futures marketing department, with retail salesmen scheduled to begin crash courses in the subject in the next few months. Already, Merrill Lynch is the largest trader of commodity futures.
A futures contract which they purchase (often on margin, which means only a small deposit is required) is an agreement to buy or sell a commodity at a future date, with a certain price. When the contract expires, the investor pays the balance and takes delivery of the goods or -- more likely -- the investor sells the contract before the due date, taking a profit of loss depending on whether prices or interest rates have risen or declined.
Ginnie Mae futures quotes will be published daily under the Government Securities heading, along with the new FNMA bonds, and futures of long-term U.S. Treasury bonds and U.S. Treasury bills (both traded on the Chicago Board of Trade).
Under the Chicago Board of Trade heading in the commodities tables, The Post will add futures in 90-day commercial paper loans; and under the Chicago Mercantile Futures, will add currency futures trading on that exchange's International Monetary Market -- in the Canadian dollar, British pound, German mark, Dutch guilder, French franc, Japanese yen, Mexico peso and Swiss franc.