Borrowing in Yen for US 30-Year Bonds

K

killATwill

I've observed two things recently:

1. IB has really attractive margin rates for borrowing in Yen.
2. IB also has low margin requirements for trading government bonds.

Could someone potentially buy US 30-year bonds using borrowed Yen, thus levering up to capture the spread in rates? My thought is one could potentially hedge against currency and interest rate risks by using futures markets to counterbalance the underlying position.

Am I missing anything here?
 
IB rate at the first tier is actually terrible, when compared to the implied rate you get from options, futures etc.
It is only at the third tier the rate is actually competitive.

Of cause when you compare to other brokers the margin rate is attractive, but I would bet hardly anyone who know a bit about derivatives would pay those rates.

Also what tsfx have said, hedging give back the interest rate differences.
 
Sure,what could possibly go wrong???

You wouldnt be the first guy to get carried out on that trade...

Dont you think the futures price in the yield differential??

No free lunch...I wish


killATwill said:
I've observed two things recently:

1. IB has really attractive margin rates for borrowing in Yen.
2. IB also has low margin requirements for trading government bonds.

Could someone potentially buy US 30-year bonds using borrowed Yen, thus levering up to capture the spread in rates? My thought is one could potentially hedge against currency and interest rate risks by using futures markets to counterbalance the underlying position.

Am I missing anything here?
More...
 
killATwill said:
I've observed two things recently:

1. IB has really attractive margin rates for borrowing in Yen.
2. IB also has low margin requirements for trading government bonds.

Could someone potentially buy US 30-year bonds using borrowed Yen, thus levering up to capture the spread in rates? My thought is one could potentially hedge against currency and interest rate risks by using futures markets to counterbalance the underlying position.

Am I missing anything here?
More...
First, volatility is no friend of carry trade. But from what I've been told, most economists believe we're heading in for a choppier market in 2024 due to possible recession.

Second, markets have already discounted the Fed to cut rates at least twice this year (why do you think indices are back up to their previous ATH?) and those expectations already drove down the dollar against a basket of foreign currencies. As for Japan, 43% of the fund managers polled by Bank of America in November think the central bank will increase rates in the first quarter of 2024.
 
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