James Franey was a businessman with experience as a fixed income trade, who ran his own hedge fund Kenish Town Capital. In November 2008, Franey was considering a unique arbitrage opportunity. The arbitrage consisted of two U.S. Treasury bonds with identical maturities. Each of the bonds paid a semi-annual coupon. The two bonds differed in their coupon rate: one bond had a 4.25% annual coupon rate while the other had an annual coupon rate of 10.625%. What ultimately attracted Franey to these bonds was its yield spread. The bonds were of similar issue and maturity, but the bonds’ yields differed by .35%, or 35 basis points. The 10.625% coupon bond had a yield of 3.61% while the 4.25% bond had a yield of 3.26%. To Franey, the bonds’ yield spread
