Should I use leverage to increase bond yield?

energetic

New member
Many people asked: Should I use leverage to increase bond yield?

In my opinion using leverage to buy bonds is just as risky as buying stocks using margin. In fact its even more risky considering its harder to liquidate your bond holdings like stock. Interest rate can change very violently in very short period of time. so profitable today may be disastrous tomorrow.

One important point is to layer the bonds into different maturity date so you are not taking up too much liquidity risk.
i.e if I have $100,000 for investment, I'll buy 5 bonds at $20,000 each with maturity in Q1、Q2、Q3、Q4 respectively. When Q1 bond matures, I can either keep it as cash if things get too nasty or just reinvest it in a 1 yr maturity bond again to earn interest. In this case you'll rarely be caught in a situation where you are unable to adjust to the changes in interest rate or bond prices.

or

Take a $200,000 portfolio of bonds just for illustration purposes.

- First $100,000 of bonds ---> buy using all cash
- Subsequent $100,000 of bonds ---> buy using $75,000 cash and 50% leverage
- Keep remaining cash of $25,000 (12.5% of portfolio value)

Remaining cash is ready for any margin call. Assume these are investment grade bonds.
 
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