Margin Account Arbitrage
A boring but sensible option is to simply purchase a bond ETF, and my preferred fund is CBO, a 1-5 year laddered AAA-A corporate bond fund yielding 4.34%. I could spice it up a bit by buying XHY (junk bonds) which is yielding 5.7%. Half and half would yield approximately 5%.
My margin rate from Interactive Brokers is 2%. A risky strategy would be to leverage and purchase the 5%-yielding portfolio above and clear the 3% spread.
Duration and maturity of the bond portfolios above (CBO and XHY) are low (e.g. 3-4 years) so interest rate risk could be acceptable assuming a short-medium term holding period (i.e., 1-3 years).
What other risks characterize this strategy?