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AI James Altucher


explain how to profit credit spreads

    1. Buy the 10 year treasury and sell the 2 year

    2. Why

    Because when interest rates go up, the 10 year goes down and the 2 year goes up

    3. So you make money on the spread between the two.

    For instance, if you buy a 10 year at 2.5% and sell a 2 year at 1.5%, then you are making .00625 (equal to 1/100 of a percent) times your $1,000,000 bond position.

    If later you sell it back to get your money back (or whatever date you want), then you will have made 6/10 of 1% on that position.

    So if you do this with many different spreads across many different maturities (2-10 years) then over time, this is how much money you should be able to make on this strategy.

    I would also suggest doing this with other countries as well (if there is sufficient liquidity). For instance, buying German bunds and selling Italian bonds or something like that for some diversification across countries as well as across maturities.

    There are other strategies but I think this is probably one of the simplest and most effective ways to profit from rising interest rates without having to predict exactly what will happen with interest rates in any given situation.

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