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Is It Free Money?

21 October 2015 by lberuti

The debate around interest rate in the US has been fairly intense since the beginning of the year. “Will the FED or won’t the FED raise interest? And if they do, at which pace will that happen?” has been the (many many) million-dollar-question. But for people willing to make some extra bucks on their short term liquidity, there might be an opportunity. Similarly to what happened the last few years, entering the last quarter does not only mean Thanksgiving is drawing dangerously close, it also means US debt ceiling drama. November, 3rd has been set by Treasury Secretary Jacob J. Lew as the probable date when the US government may no longer be able to cover its expenses without Congress boosting the debt limit. That rocked the Treasury bills market as investors backed away from securities considered at risk for potential payment delays. That also impacted the risk premium of the USA. While the amount traded are irrelevant compared with the Treasury debt market, the 5 year CDS went up from 15bps to 27bps, and the 1 year CDS went from 5bps to 55bps. Carry, anyone?