Bond Swap


DEFINITION of 'Bond Swap'

Selling one debt instrument in order to use the proceeds to purchase another debt instrument. Investors engage in bond swapping with the goal of improving their financial positions. Bond swapping can reduce an investor's tax liability, give an investor a higher rate of return or help an investor to diversify a portfolio. The pure yield pickup swap and the tax swap are two common bond-swapping strategies.


For example, selling a bond at a loss and using the proceeds of the sale to buy a different bond with better performance is a type of bond swap. This swap has two potential benefits: the investor can write-off the losses from the bond he or she sold to lower their tax liability, and they can potentially earn a better return with the newly purchased bond.

  1. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
  2. Bond

    A debt investment in which an investor loans money to an entity ...
  3. Intermarket Spread Swap

    A swap transaction meant to capitalize on a yield discrepancy ...
  4. Face Value

    The nominal value or dollar value of a security stated by the ...
  5. Workout Period

    The period of time when temporary yield discrepancies between ...
  6. Wash Sale

    A transaction where an investor sells a losing security to claim ...
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