What kind of leverage can you get trading bonds?

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?

 

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.

 

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

 

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

 

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

 

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

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

 

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

 

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

 

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.