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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (19539)	10/7/2004 10:15:02 AM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 110194

what do you think about trading the AUD futures? they are backwardated, with DEC 05 trading at about a 2-cent discount to spot. i haven't traded currency futures and am wondering if there's some kind of "catch". all i can see is that if you buy the bonds maturing in DEC 05, you pay spot but the interest-to-maturity should equate back to approximately the DEC 05 future's current price. does that sound correct? if so, then it would seem to be the same thing to trade the futures or the bonds of the same expiry/maturity. however, there may be smaller spreads on the futures, and obviously futures can be traded on margin unlike the bonds (for retail investors, anyway). any thoughts?

To: russwinter who wrote (19539)	10/7/2004 10:23:55 AM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 110194

another ill-formed thought: from a US tax perspective (based on my limited knowledge), the Aussie bond interest is taxed as unearned income, whereas any profits on the futures are split 60/40 long-term/short-term. note that the Aussie govt taxes bond coupons paid to foreigners--i think it's 10%. so to get the tax credit, i hold them in a taxable acct. since i hold them in a taxable acct anyway (due to the unavoidable foreign taxation), ceteris paribus it seems the tax comparison between bond interest and futures 60/40 split would favor the futures. i don't know if the backwardation fully accounts for this potential tax arbitrage.