brewer12345
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Mar 6, 2003
- Messages
- 18,085
I am trying to think of a way to short credit spreads. Basically, I believe that credit risky bonds are overly bid up and represent inadequate compensation for the risk of defaul compared to treasuries. I think that credit spreads will eventually widen out, and being short credit spreads will pay off.
AFAIK, there is no way to go short credit spreads via any sort of option, at least not if you are a retail investor (institutions can do credit default swaps, and similar). So I think I have figured out a way to do this synthetically using ETFs. In a nutshell, it looks like shorting LQD and going long IEF would accomplish this. Check this out:
Yield, Duration, Maturity, Rating
IEF 3.77%, 6.49, 7.83, Aaa/AAA
LQD 4.58%, 6.43, 9.93, A2/BBB+
Does anyone see any obvious holes in this strategy?
AFAIK, there is no way to go short credit spreads via any sort of option, at least not if you are a retail investor (institutions can do credit default swaps, and similar). So I think I have figured out a way to do this synthetically using ETFs. In a nutshell, it looks like shorting LQD and going long IEF would accomplish this. Check this out:
Yield, Duration, Maturity, Rating
IEF 3.77%, 6.49, 7.83, Aaa/AAA
LQD 4.58%, 6.43, 9.93, A2/BBB+
Does anyone see any obvious holes in this strategy?