Sunday, March 28, 2010

Shorting bonds

A small FT item on shorting the bond market. There are a number of different ways to do this: futures, repos or CDS.

Shorting bonds can be done using futures or repos [repurchase agreements], or credit default swaps. The last method is not ideal, warned Mr Inker. “There is the risk of governments declaring your contract invalid.” A number of politicians have called for restrictions on CDS trading.

This is a strategy designed to enhance yield in a low interest rate world. Risk-reward is in favour of high yields.

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