and what bonds do you suggest we do it with?
Is it possible or advisable to get loans in a foreign country where interest rates are lower and inv
- Thread starter GarrettKimmel
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If it was me, I'd buy US blue chip corporate bonds.
ok, I'll go to my bank and tell them, "I'm tired of this .02 interest you are paying me. I want to take out a loan and invest it in US blue chip corporate bonds."
The money to invest or arbitrage has to come from somewhere. It's just one big whackamole. Take it from here, put it there. And it is all efficiently priced so there is no free lunch. Hate to tell you, if you want to make significant money you either need to start with a lot, or gamble.
loyek590, you just made the critical point "it is all efficiently priced". Any kind of carry trade involves risk, and the risk is exactly equal to the extra profit you get. Because of the continuous small interest payments, our brains tend to see this kind of risk as different than the risk of investing in a penny stock, for example, but the markets are generally efficient in these areas and you'll face the same risk for a given return in either market.
The complexity and haircut needed to do this, absent a leveraged USD/BRL FX product, makes it a huge PITA. BR govt regs make it impossible to offer a a xxx/BRL contract. Regardless, there has never been a viable cash market for going long BRL. Saxo offered one that was 3x geared and BR govt went batshit. Pick a surrogate? Sure, MXN is correlated (why?) and it's trading at the Kiwi swap rate (sic).
Don't get into the carry trade in massively inverted curves. You will get raped. The complexity makes you feel smart, but it's not worth the risk.
Don't get into the carry trade in massively inverted curves. You will get raped. The complexity makes you feel smart, but it's not worth the risk.
I am aware of corporate bonds paying as much as 8% by US Blue Chips and there may be ones paying even more IE .02 is for people who do not know any better. Taking a loan to invest in bonds was not my idea and besides how much more is he going to make in Portuguese treasuries? The poster in his post did not mention that he was trying to get rich over nite or within a few quick years, those are your assumptions.
why are they paying 8% when the going rate is much lower?
And those 8% "blue chip" bonds have a 6% chance of defaulting, if you take 2% to be the risk free rate. The risk of default is completely priced into bonds, especially large U.S. company bonds. That's why some trade at a very small premium to Treasuries and some at a much larger premium. If you are fine with that increased risk for the increased yield, great, that's the basis of modern portfolio theory after all. That doesn't make the risk free rate "for people who do not know any better" though. Its quite literally for those who want an investment with almost no chance of default.
There is no risk free investing in the corporate world including the 2% on your savings, money market account and obviously most who would invest in bonds have more than FDIC & SIPC would protect. The generally accepted risk free benchmark used in the institutional world is the 90 day US treasuries, loyek590 referred to a 2% at his bank and no mention of the risk free IE savings, money market account etc.. The companies I am referring are in the top 20-30% of S&P500. I bet investors who had checking, saving accounts in Cyprus thought they were investing risk free given Cyprus is an EU and an ECB member.
PS I am not advising you guys what to do or how to invest, I am not a financial advisor just a full time trader.
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I am not an institutional expert, my guess would be they are investing in Emerging Markets where they are making more.