Normally such returns with safe bonds are impossible…but wait a minute….look at this.
Dear International Friend,
Here's the catch. Iceland is an unusual place, in many ways including its issue of government bonds. The bonds issued by the Icelandic government are (according to the bond rating agencies) among the safest in the world. However because of Icelandic inflation the currency has fallen versus the US dollar and yields this has pushed yields up. You can get as much as 9.79% on ISK (Icelandic kroner) denominated short term Icelandic bonds. The risk is that the ISK will devalue versus the US dollar. However the chart attached shows that it has been remarkably stable relative to the Euro. This means that these bonds are also an excellent alternative to speculating in Euros. To top this off the yield curve is inverted as in Poland. You get a higher yield on short term bonds than long. Bonds that mature in 2003 yield 9.79%, while bonds that mature in 2010 yield a lower 9.01%.
A fully leveraged one year multi currency sandwich using 2% Japanese yen loans can earn 44.95% over the next year. Wow! Here is how this would work. You invest $20,000 (or whatever amount you wish over about $16,000) in the 2003 Iceland bonds which earns 9.79% or $1,958. You borrow $80,000 of yen at a cost of $1,600. This $80,000 is invested in the 2003 bonds which pays $7,832. So your total income is $9,790, less the 1,600 interest cost or a total $8,190 return which is a 40.95% return on the original $20,000 invested.