The Lloyds-HBOS Arbitrage

Robert Peston is on form this morning, writing about the proposed takeover of HBOS by Lloyds TSB:

If you believe that the terms of the deal won't and can't be changed, the current HBOS share price is an opportunity to buy £10 notes for £6.60.
That looks too good to be true. And the normal investing rule is that if it looks too good to be true, then don't touch it even if you're in a radiation-proof suit.
But normal rules don't apply right now.
There's a wonderful quote in this morning's Guardian from an unnamed "major" investor, who said to that newspaper: "the market is suggesting that the deal is not going to happen. And the market is usually right."
The market is usually right? Where has he or she been for the past few years?
In that period, the market has been comprehensively, systematically wrong about almost everything. But don't get me started.

Of course, Lloyds is paying in stock, so in order to arbitrage the HBOS share price you would have to simultaneously short Lloyds. Is that even possible these days?

(HT: Ishmael)