Bond Swap

AAA

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.

INVESTOPEDIA EXPLAINS 'Bond Swap'

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.

RELATED TERMS
  1. Intermarket Spread Swap

    A swap transaction meant to capitalize on a yield discrepancy ...
  2. Bond

    A debt investment in which an investor loans money to an entity ...
  3. Premium Bond

    1) A bond that is trading above its par value. A bond will trade ...
  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. Pure Yield Pickup Swap

    A transaction in which bonds with lower returns are swapped for ...
Related Articles
  1. Bonds & Fixed Income

    Corporate Bonds: An Introduction To Credit Risk

    Corporate bonds offer higher yields, but it's important to evaluate the extra risk involved before you buy.
  2. Retirement

    Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?
  3. Bonds & Fixed Income

    Advanced Bond Concepts

    Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration.
  4. Mutual Funds & ETFs

    Preferred Stock ETFs: Are They Right for You?

    Considering preferred stock ETFs? Here's a look at their pros and cons.
  5. Mutual Funds & ETFs

    PIMCO vs. BlackRock: Weighing Mega Fund Managers

    A look at the world's biggest bond manager and the world's largest asset manager.
  6. Mutual Funds & ETFs

    The ABCs of Mortgage-Backed Securities ETFs

    ETFs focused on mortgage-backed securities, or MBS, offer an opportunity to further diversify the fixed-income portion of your portfolio.
  7. Investing

    How Swaptions Can Reduce Risk in Portfolios

    How can investing in Swaptions reduce risk in portfolios.
  8. Economics

    What Would Happen If Interest Rates Rise?

    This time around, while U.S. long-term yields have rebounded from their January lows, rates have generally been lower than where they ended 2014.
  9. Investing

    Strategies To Position Your Bond Portfolio

    Fixed income investors may not be able to see them all right now, but important trends are stirring on the investment horizon.
  10. Savings

    How To Make Money With Airbnb: Risks & Rewards

    Airbnb lets you turn your home or spare room into extra cash. Here's how to make money and protect yourself from the risks.

You May Also Like

Hot Definitions
  1. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  2. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  3. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  4. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  5. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  6. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
Trading Center