Expert: Doug Ingram - 8/26/2010

Question
Can I borrow money from banks to buy US Treasury bonds?
Can the borrowing be quoted in floating rate?
What will be the spread?

Answer
Institutions can sometimes borrow because they have balance sheets to justify the borrowing.

However, it's doubtful you would find a willing lender as an individual.  A Treasury bond has a specific coupon, but the price can vary significantly as yields rise and fall.

Thus, a bank that would lend you $10,000 to buy $10,000 in bonds would be cautious in that your Treasury could be worth a market value of only $9,000 (or more or less) while they lent you $10,000.

Additionally, if you borrowed floating rate, you could be at huge risk if rates went higher (and they are already very low). You would end up paying more interest than the investment is providing - and the value of the investment would be falling.

If a lender could be found, chances are they would only be willing to loan a percentage (like 50% to 80% at best) of the intended purchase.  A brokerage firm might do this in a margin account for you, but it would be at around 50% and you would most likely pay more interest than the Treasury provided.

My personal opinion - and it's just that - is that I wouldn't borrow to buy Treasuries, though they are a safe investment for protecting what you already have.