This is a bit of an odd idea and I'm looking for help to see if it's even possible. I want to short Treasuries and use the money to buy high cash value life insurance. The interest rate differential makes it work - essentially a long-term carry trade. However, I would need to use the cash value as collateral to secure the account. Is there a brokerage that would make that possible? Or some other method, maybe? I'm not a bond trader, so I don't know my options.
Well, it's not actually 'buying' something. It's whole life insurance, which carries a cash value. If you set it up in a specific way, then you can have access to 80% or more of the input money. I'm trying to use the funds to pay for the cash value of the policy, then use the cash value as collateral against the Treasuries. I know you can get a bank loan using the cash value as collateral, so I'm wondering about doing it this way because shorting Treasuries is a low interest loan. It's essentially a poor man's carry trade. Short answer - I don't know. That's why I'm asking. I do know that with a Portfolio margin account, you could short Treasuries, then use the funds to buy other securities.
It's an interesting question, a couple of thoughts. First, I'm not sure the opportunity is actually there that you think is there, given that the insurance is offering you a return plus life insurance and has to invest in something like treasuries plus offer the life insurance plus make a profit. So if they're offering a rate better than treasuries it means a couple of things. One, you could be making an error on tenors. Short term rates are very low but longer term rates are higher right now. Are you matching the same term treasuries to the times you have to hold the insurance? Assuming you are matching tenor, then you're signing a bilateral long-term contract with a company that's either guaranteed to lose money or is investing your money in higher risk debt instruments than treasuries. If it's the former, they'll eventually go out of business and you'll need to calculate how much of your money you'll get back at that point. If it's the latter, you're just opting for a higher risk for a greater risk adjusted return. You could do that a lot easier without the insurance as an intermediary right? As far as selling treasuries short to buy other stuff, not really possible at retail level for non-securities purchases.
No funds are isolated, just like funds from (equity) short sales. See also this topic: https://www.elitetrader.com/et/threads/cheaper-financing-than-ibs-margin-rates.341064/