Is this a stupid idea?

borrow USD at 3.5% buy euro bonds yielding 5%?
How much margin would you need?
And what would be a good broker/ bank to do this?

 

You've heard of the term "Carry Trade", right?

That's the position you're describing, and it's an extremely common practice. Most Carry Trade investors prefer to borrow Yen though, not USD.

Personally, I think the Euro has become overvalued vs the USD, and you'll see it trade below $1.25 at some point before the end of next year.

 

Where can you borrow USD at 3.5%?

 

a)yeah, i know, the yen carry trade seems a bit crowded though

b)no idea about the direction of euro vs dollar, but i understand that's the risk in the position

 

interactivebrokers charges fed funds +0.5% as their best rate

 

1/ IB charges 3.5% on funds borrowed in excess 1 mio USD. The balance below it is 4% and the 1st 100,000 is 4.5%.

2/ You see the yen carries crowded, so you want to enter EUR/USD _long_?! At historic highs? All for a perceived _1.5%_ _yearly_ interest advantage?

Think this through...

 

do it through EURO/USD-futures and your intrest rate spread will be even better than interactivebrokers.