He stood a moment as though lost in some reverie then chuckled. "Sometimes I do tend to go on and on. I believe it was selling you asked about. The fact is you would not be actually selling Treasury obligations."
"Then what . . . ?"
"Are you familiar with interest-rate futures?"
"Of course." The question was so unexpected I answered almost before I thought. Futures contracts were part of the big new game on Wall Street, although most of the action was still out in Chicago, places like the Merc and the Board of Trade, left over from the old days when farmers sold their crops in advance at an agreed-upon price. The farmer "sold" his grain harvest to a speculator while it was still nothing but green sprouts. He was worried the price might drop before he got it to market; the speculator was praying it would head up. The farmer, interestingly, was selling something he didn't yet have. But even if the price of wheat suddenly tanked, he was covered.
These days futures contracts were traded for all kinds of things whose value might change with time. High on that list were financial instruments such as Treasury notes and bonds, whose resale worth could drop if interest rates unexpectedly rose. If you owned a bond and were worried it might go down in value, you could hedge your exposure with a futures contract, in effect "selling" it in advance at the current price and letting somebody else assume the risk of future market uncertainty.
Modern finance being the marvel it is, you could even sell bonds you didn't own, just like the farmer's nonexistent grain. The Wall Street crowd called this a "naked" contract, since you were obligated to go out and acquire that bond in the open market on the day you'd agreed to deliver it, even if the price had skyrocketed in the meantime. Or you had to try and buy back the contract. Of course, you were betting that price would go down, letting you pocket the difference.
Pious spirits on the futures exchanges called these deals high finance and risk hedging. They operated, however, remarkably like legalized gambling. Dabbling in interest-rate futures was not for those with a dicey heart.
"Our objective," Noda went on, "is to cushion Japan's exposure somewhat."
"With futures contracts?"
"Precisely. U.S. Treasury obligations are held by a variety of investors in Japan, but up until now we have made very little use of the protection possible in your futures markets. Nippon, Inc. will concern itself with that."