The Trade That Made Me Millions - Interest Rates
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Gary explains how he made his millions betting on economic disaster when he worked in the City for Citibank. He also explains why this bet is no longer possible SUBSCRIBE, SHARE & START A CONVERSATION SOCIAL MEDIA: WEBSITE - wealtheconomics.org TWITTER - @garyseconomics FACEBOOK - @garyseconomics INSTAGRAM - @garyseconomics Performed by Gary Stevenson GARYSECONOMICS Produced by Simran Mohan MOHAN MEDIA
Gary Stevenson explains that his money came from a specific arbitrage he identified in the post-2008 macro environment, where central banks kept interest rates near zero while the market expected rates to rise. He details his role as an interest rates trader at Citibank, describing how he would borrow at low or zero rates and lend at higher rates in the near term, then roll the position as rates were forecast to increase. The core mechanic, often called a carry trade on interest rate differentials, is explained with concrete numbers: borrowing at 0% and lending at around 2% or more, profiting from the spread as time passes and expectations shift. He emphasizes that the trade worked for about a decade from 2008 to 2020, including individual executions in 2011 and 2012, and he notes that the environment that made it profitable has since shifted as consensus moved to the view that rates may stay low or even that low is
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Questions answered
- What is the core trade Gary used to profit from zero or near-zero interest rate environments?
- The core trade involved borrowing money at very low or zero rates and lending it at higher rates ahead of time, then waiting for rates to rise while keeping the higher yielding loan in place, effectively earning the positive carry as the market realized rates would not stay low.
- Why did Gary believe rates would stay at or near zero for so long?
- He observed that in the aftermath of the 2008 crisis, the economy showed little sign of robust recovery, leading to a widespread expectation among economists and traders that rates would remain low or decline further instead of rising soon.