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The beauty of borrowing short is that you don’t have to pay for term risk. The interest rate spread between the
risk free rate on short term government obligations and the 30 year Treasury bond rate is normally about 3 to
3.5 %. If a corporation is able to borrow in the commercial paper market, promising to repay within 30 to 60
days, an interest rate is paid that is usually lower than the rate of long-term bonds. Reductions in the borrowing
rate occur for medium term debt (4-6 years), but the rate differential is less.

If an investor is able to borrow short and invest long, the economics are very compelling. Assume an investment
is funded 100% with debt. The investor is able to capture a 3 to 3.5 % interest rate spread while employing no
capital. The rate of return on invested capital is infinite.