What kind of leverage can you get trading bonds?

[microjohn]

I recently became aware of a deal where I can get 10-1 leverage in equities overnight, with no time restraints. I figure I can buy an 8% preferred stock of some choice and make the 4% difference, based on my 4% monthly cost. On 100K down that's an extra 40K a year basically risk free...a carry trade. I wanted to know about bond leverage because this carry could be far greater with better than 10-1 leverage.

Thoughts?

 

[riskarb]

Yeah, I have a thought. You're receiving $80,000 in the pref and paying $48,000 in vig. You need to multiply your 4% staked-vig * 12, not 10. You really pay 4% to carry 10:1 overnight?

What makes you think this preferred-carry is "basically risk free"? You've got substantial share-risk on the preferred. Granted, it may very well rally, but you're dead-money if the pref takes a 3.2% hit by EOY.

 

[SuperPiker]

I recently became aware of a deal where I can get 10-1 leverage in equities overnight, with no time restraints. I figure I can buy an 8% preferred stock of some choice and make the 4% difference, based on my 4% monthly cost. On 100K down that's an extra 40K a year basically risk free...a carry trade. I wanted to know about bond leverage because this carry could be far greater with better than 10-1 leverage.

Thoughts?

Great idea but you run a serious risk of the firm blowing up. Is this "deal" insured?

 

[skiing1]

I'm interested in buying Bonds and hedging the position
that is leveraged.
Who do you know that is proficient in that?

 

[LivermoreRisen]

Quote from newbunch:

Why not trade bond futures. I know the 10-year note future has an underlying of about $110,000 and an initial overnight margin of about $1,000. That's some pretty good leverage!

Depending on where you go, 500 margins can be found for T-Bonds

 

[Surdo]

What's wrong with using Futures and/or Options as a hedge?

http://www.cbot.com/cbot/pub/page/0,3181,830,00.html

 

[LivermoreRisen]

Quote from Buy1Sell2:

what advantage is margin when the underlying moves less than other markets? You need to compare daily ranges with margin to see where you get the most bang. Still though, I would recommend not trading at more than 5 to 1 regardless of exchange requirements ie 1 10 yr contract per 20,000 equity

You must be a spread trader. Only a spread trader would be that risk averse.

 

[skiing1]

What firm is the most proficient in Hedging a leveraged
position?

 

[lescor]

First of all, who's lending you money at less than the interbank rate? They aren't charging you any haircut? Seems rediculously cheap, I think you might be missing something.

Secondly, your 'carry trade' is not risk free, not at all. Pull up a daily chart of any preferred stock or corporate bond during one of the several interest rate shocks we've had over the last couple years. March '05, April '04, March '03, etc. At 10:1 leverage on any corporate debt instrument, you would have lost all your money.

It's not as simple as it seems on the surface. It almost never is.

Quote from microjohn:

I recently became aware of a deal where I can get 10-1 leverage in equities overnight, with no time restraints. I figure I can buy an 8% preferred stock of some choice and make the 4% difference, based on my 4% monthly cost. On 100K down that's an extra 40K a year basically risk free...a carry trade. I wanted to know about bond leverage because this carry could be far greater with better than 10-1 leverage.

Thoughts?