bearfund

The End of the Gold Carry Trade

All very reasonable, except that you wouldn't ordinarily want to buy securities with more duration than the length of your lease. At least not if you're genuinely looking to exploit an arb opportunity rather than make a directional bet on interest rates. If your lease is for 1 year, you wouldn't want to own Treasuries maturing more than 13 months out; if interest rates rise, your losses on the notes could erase much of your free money. Margins here are very thin, so if you bought the 10-year against a 1-year gold lease, a few ticks on the note would make this trade a loser. Now, if the Fed gave you a perpetual 3% lease, they might as well have given you a printing press. But I doubt those are the terms.